Albayrak v Truth (SA) Pty Ltd
[2020] SASC 87
•20 May 2020
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ALBAYRAK v TRUTH (SA) PTY LTD
[2020] SASC 87
Judgment of Judge Bochner a Master of the Supreme Court
20 May 2020
CORPORATIONS
Remuneration of liquidator - s 482 - costs of voluntary administration and DoCA.
Corporations Act 2001 (Cth); Supreme Court Act 1935 (SA); Liquor Licencing Act 1997 , referred to.
Venetian Nominees Pty Ltd v Conlan (1998) WAR 96; Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699; Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38; Park & Muller (liquidators of LM Investment Management Ltd) v Whyte No 2 [2017] QSC 229; Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2) [2019] FCA 93; Leveraged Capital Pty Ltd (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739; Morgan v Poulter (in his capacity as former liquidator of Twenty-Seventh Android Pty Ltd) [2019] VSC 563, considered.
ALBAYRAK v TRUTH (SA) PTY LTD
[2020] SASC 87
By way of interlocutory application filed on 27 September 2019, Mr Strazdins, the former liquidator of Truth (SA) Pty Ltd (“the company”), seeks to have his remuneration determined for the work that he carried out while the company was in liquidation. His application has been strongly resisted by the company’s sole director and shareholder, Mr Seref Albayrak.
For the purpose of the application, the following material was tendered:
L1 Letter dated 21 October 2019
L2 Letter dated 25 October 2019
A3 Report of Mr John Melluish
L4 Affidavit of Mr Strazdins filed on 13 August 2019
L5 Affidavit of Mr Strazdins filed on 28 August 2019
L6 Affidavit of Mr Strazdins filed on 13 February 2020
L7 Timesheet analysis for period 24 August 2019 to February 2020
L8Second Affidavit of Mr McCusker filed on 17 February 2020 subject to the striking out of paragraphs 9-11 and the related exhibit
A9 Affidavit of Mr Albayrak filed on 9/8/19
A10 Affidavit of Mr Albayrak filed on 13/8/19
A11 Affidavit of Nilufer Kavouklis filed on 9/8/19
A12 Affidavit of Mr Albayrak filed on 12/8/19
A13 Affidavit of Nikitas Kavouklis filed on 11/9/19
A14 Affidavit of Nilufer Kavouklis filed on 11/9/19
A15 Affidavit of Mr Albayrak filed on 11/9/19
A16 Affidavit of Mr Vaezi filed on 11/9/19
I note that this matter was commenced by Mr Albayrak, as plaintiff, in his capacity as director and shareholder of the company in liquidation. The company was the defendant. At the hearing of the remuneration argument, there was some confusion between the parties as to the way that the parties should be named, given that the interlocutory applicant was Mr Strazdins as intervenor and the interlocutory respondent was, effectively, the company, as it is the company that will be liable for Mr Strazdins’ fees. To avoid confusion, I will refer to Mr Strazdins and Mr Albayrak by their names rather than as applicant and respondent. When I am dealing with the arguments in relation to remuneration, a reference to Mr Albayrak should be taken as including a reference to the company, as the submissions made by Mr Albayrak in this application were clearly on its behalf. When I refer to Mr Strazdins in relation to remuneration, it should be taken that I am also referring to his staff, where appropriate.
Background
The company operates the business of a nightclub (“the club”), situated in Adelaide’s central business district. The club opens two nights per week, on Saturday and Sunday nights. It usually opens at 10pm, and is open until the early hours of the morning.
On 24 July 2019, the Federal Court of Australia made a winding up order on the ground of insolvency in relation to the company. Mr Strazdins was appointed liquidator by that order. The order was made on the application of the Return to Work Corporation of South Australia (“the Return to Work Corporation”). The order was made on the basis that there was no appearance for the company at the hearing of the application, nor did the Return to Work Corporation receive any communication from the company since the service of the statutory demand. It can be inferred that the Court was satisfied that the company had been served with the statutory demand and the originating application at its registered office, by the fact that the order was made.
Mr Albayrak says that he first became aware that the company had been wound up during the day on 24 July 2019, when two employees of Mr Strazdins came to the club and told him that the company had been placed into liquidation, and that he no longer controlled it. They advised Mr Albayrak to seek legal advice.[1] It is Mr Albayrak’s position that he was not aware of the existence of the statutory demand, the originating application, or the court date.
[1] A15 at [3] – [7].
Mr Albayrak telephoned DW Fox Tucker Lawyers and made an appointment to see Mr Mark Gowans. At that meeting, Mr Gowans told him to go to his bank and obtain his bank statements. He told Mr Albayrak that he had organised a meeting with Mr Strazdins at 3pm that afternoon.
At some point during the day on 24 July 2019, Mr Gowans telephoned Mr McCusker, Mr Strazdins’ solicitor. Without setting out in detail the contents of that conversation, it appears that they discussed Mr Gowans’ belief that the company was solvent, and a proposal by Mr Albayrak that a licence agreement be entered into to allow Mr Albayrak to continue to operate the club while seeking an order to terminate the liquidation. They discussed a number of issues that would need to be addressed before a licence agreement could be entered into, including the requirements of the Liquor Licencing Act 1997, relevant insurance arrangements and an indemnity for Mr Strazdins for any debts or losses incurred by Mr Albayrak while trading the club.[2]
[2] L8 at [3] – [4].
Mr Albayrak met with Mr Strazdins on 24 July 2019, at 3pm. At this point, the winding up order had been in place for about 5 hours. Also present at that meeting were Mr Gowans, Mr Albayrak’s mother, Mrs Nilufer Kavouklis and his step-father, Mr Nikitas Kavouklis. Mr Albayrak says that “a few other members of [Mr Strazdins’] team” were also present.[3] The accounts of what occurred at this meeting vary somewhat from person to person.
[3] A15 at [11].
Mr Albayrak’s account is set out in A15. In effect, he says that the “situation” was discussed and Mr Strazdins told him that he needed to see if there were other creditors. Mr Albayrak showed Mr Strazdins his bank statements, to demonstrate to him that the company had more than $500,000 in the bank. Mr Strazdins told Mr Albayrak that he (Mr Strazdins) now controlled the company. Mr Albayrak told Mr Strazdins that the club needed to open over the coming weekend; failure to open would lead to significant losses in relation to both reputation and revenue. He asked if there was a way to keep the club open and get the order overturned.
It is Mr Albayrak’s evidence that Mr Strazdins told him that if he sought to have his appointment as liquidator reviewed, he would close the club and not allow it to trade. He says that Mr Strazdins told him that the only way he would allow the club to remain open was to continue with the liquidation, then place the company into voluntary administration. He says that Mr Strazdins told him it could take several weeks for a court to list a hearing in this matter.
Mrs Kavouklis sets out her recollection of the meeting on 24 July 2019 in A14. She says that on arrival at the liquidator’s office, Mr Strazdins explained that he had been appointed by the court, and that he now controlled the company. Both Mr Strazdins and Mr Gowans expressed surprise at how much money the company had in the bank. She deposes:
Mark [Gowans] said as long as there were no major creditors, he was hopeful that if they went to court [the club] will be found solvent. He said they could plan for the 8th of August for a court date or otherwise the 16th of August for a court date.[4]
[4] At [11].
Mrs Kavouklis makes no mention of other members of Mr Strazdins’ staff being present, that Mr Albayrak talked about the need for the club to remain open, or that Mr Strazdins said that he would only allow the club to remain open if it remained in liquidation and proceeded to a voluntary administration.
Mr Kavouklis sets out his recollection of the meeting on 24 July 2019 in A13. He says that he does not have an exact recollection of what was discussed, however, he recalls that Mr Gowans suggested taking the matter to court because the company was not insolvent. Mr Strazdins expressed surprise at how much money was in the bank. Mr Strazdins explained what he was required to do as he was now in control of the club, and said that he would investigate further creditors.
As can be seen, only Mr Albayrak deposes to a longer discussion about voluntary administration occurring on 24 July 2019.
Mr Strazdins’ account of the meeting on 24 July 2019 is found in L6. He says that Mr Albayrak attended his offices with Mr Gowans and some family members. He was agitated that the company had been wound up and asked how the company might be returned to him. He expressed his wish that the club remain open to protect its reputation and its business. The question of an application to the court to terminate the winding up was raised by Mr Gowans. He does not mention a discussion about voluntary administration on this day.
A second meeting was held on 25 July 2019. In relation to this meeting, the accounts of Mr Albayrak and Mr and Mrs Kavouklis are much more consistent, albeit with some differences. Mr Albayrak deposes (again in A15) that Mr Strazdins told them that the company was “healthy and solvent”[5] and that he proposed that the company be placed into voluntary administration (with Mr Strazdins as administrator) followed by a deed of company arrangement. He said that there was a risk with a termination application that a judge might determine that the company was insolvent because of large related party loans. Mr Strazdins told them that if Mr Albayrak did not agree with his proposal, the club would be closed over the weekend. He estimated that the voluntary administration/deed of company arrangement would cost the company around $100,000. Mr Albayrak deposes that Mr McCusker said, apropos the voluntary administration/deed of company arrangement:
“You’re better off doing this than seeing a judge”.[6]
[5] At [17].
[6] At [18].
Mr Kavouklis (in A13) says that Mr Strazdins informed them that it could be dangerous to go to court because of the related party loans, and so the company should be kept in administration. He told them to follow his advice:
…because in the end the creditors would probably get 30 cents in the dollar.[7]
[7] At [9].
He also said:
“Seref did the wrong thing” … and “Seref has to pay”.[8]
[8] At [9].
Mr Kavouklis maintains that Mr Strazdins told them that he would not let Mr Albayrak open the club. Mr Strazdins estimated that the process would cost around $100,000.
Mrs Kavouklis deposes (in A14) that, prior to the meeting, they were told by Mr Gowans that:
the liquidators wanted to speak to us, saying they had changed their mind and didn’t want to go to court immediately.[9]
[9] At [12].
On arrival at Mr Strazdins’ office, they were told by Mr Strazdins that as she and Mr Albayrak were the biggest creditors, it would be “risky” to go to court. The only way to proceed was by way of the voluntary administration/deed of company arrangement process. He would only allow Mr Albayrak to run the club if this process was followed. Mr Strazdins told them:
… Seref has made a stupid mistake, and that “he has a family to feed”.[10]
[10] At [12].
Mr Strazdins estimated that the process would cost a maximum of $100,000.
Mr Strazdins deposes to his recollection of the meeting held on 25 July 2019 in L6. He says that at this meeting, both the termination application and the voluntary administration/deed of company arrangement process were discussed, as well as how the club might trade until the company was returned to Mr Albayrak’s control. He deposes as follows:
7.5 In regards to termination of the winding-up, I said words to the effect that:
7.5.1 It was a matter for Mr Albayrak whether he wished to make an application to Court to terminate the winding-up.
7.5.2 Although I wasn’t a lawyer, I did not necessarily think from previous experience in similar situations that such an application was clear cut, and I pointed out the existence of the substantial related-party loans (which I said would likely mean that the Company was insolvent) and the uncertainty with regards the ATO’s position given that the Company had missing some filings. I also didn’t know what other creditors the Company had.
7.5.3 I was unaware of when the Court would be in a position to deal with any application (noting that it was already Thursday) and, when the matter was initially heard, the Court may require me to prepare a report – which report would likely take me at least a couple of weeks to prepare.
7.5.4 The Court option may become expensive and it was not necessarily guaranteed to succeed, as I was unaware of the exact financial position of the Company at that time.
7.5.5 With the option for a voluntary administration and a DoCA, there would at least be some control over the process, and if unrelated creditors were to be paid 100 cents in the dollar, then there could be some confidence that the DoCA would be approved, because creditors did not generally vote against a DoCA where they received full repayment.
…
7.7Those present at the meeting had a discussion about these matters. Whilst I do not now remember the exact words said, I recall that by the conclusion of the meeting, each of Mr Albayrak and his lawyer Mr Gowans had said words to the effect that:
7.7.1 the DoCA option would be pursued and that Mr Albayrak would not proceed to make an application to terminate the winding-up in Court;
7.7.2 I should proceed to incur the costs of trading the nightclub to ensure continuity of business;
7.7.3 Mr Albayrak could manage the business under the Liquidator’s supervision (with the details to be further arranged) subject to me being satisfied that appropriate insurance and other arrangements were in place to minimise the high risk; and
7.7.4 I would start the work on convening a meeting of creditors to obtain approval to appoint myself as a voluntary administrator and would start work on the section 439A report for the DoCA.[11]
[11] L6 at [7.5], [7.7].
Mr Strazdins’ recollection is that, at the end of these discussions, each of Mr Albayrak and Mr Gowans expressed the view that a termination application should not be pursued; rather, the voluntary administration/deed of company arrangement process was the preferred option. It was agreed that Mr Albayrak would manage the business under Mr Strazdins’ supervision, and Mr Strazdins would commence the work of convening a meeting of creditors. It is his recollection that Mr Gowans said words to the effect that the voluntary administration/deed of company arrangement process “was likely to be the “‘quickest way home’”.[12]
[12] At [7.8].
Mr McCusker, Mr Strazdins’ lawyer, was also present at the meeting on 25 July 2019, and has provided his account of what occurred in L8. He deposes that he, Mr Albayrak, Mrs Kavouklis, Mr Kavouklis, Mr Gowans, Ms Krystie Miller, an associate employed by Mr Gowans’ office, Mr Strazdins and Mr Lachlan Scott, employed by Mr Strazdins’ firm, attended the meeting. Despite its length, I set out in full his account of the discussion:
5.Whilst I cannot now recall the precise words used, I recall that during the course of the meeting held at the offices of BRI Ferrier Adelaide on 25 July 2019, Mr Strazdins said words to the effect that:
5.1 it was unfortunate that the Company had been placed into liquidation over such a small debt in circumstances where there was $500,000.00 in cash in the Company’s bank account;
5.2 the Company was in liquidation and, consequently, Mr Strazdins was obligated as the Liquidator to carry out the liquidation process;
5.3 he was not aware what other creditors may exist and may make a claim upon the Company in the course of its liquidation;
5.4 in the event the loans owed to Mr Albayrak and Ms Kavouklis are to be taken into account in the liquidation, the Company was likely to be insolvent;
5.5 he had been giving thought as to how, if at all possible, to effect the return of the Company to Mr Albayrak as quickly and inexpensively as possible;
5.6 he was permitted to trade a business in liquidation for a period if he considered it to be in the best interest of the creditors of the company so as to maximise the return to the creditors;
5.7 trading a nightclub gives rise to a number of risks for a Liquidator – such as fines imposed upon a liquor licence holder for underage drinking and personal injury claims and/or criminal prosecutions arising from alcohol fuelled violence and/or drug use;
5.8 in the event Mr Strazdins was to make arrangements for Zhivago to trade on the weekend commencing 27 July 2019, he may need to, amongst other things:
5.8.1arrange for insurance to cover him in the event any claims are made in connection with the trading of the business during the period he is in control of the Company;
5.8.2expend funds of the Company in order to ensure the business has sufficient stock and to pay staff;
5.8.3arrange for security personnel for the premises;
5.8.4arrange for his own staff to be in attendance at the premises during trading;
5.8.5have stocktakes performed by his staff after each trading weekend and an accounting performed of the takings each weekend; and/or
5.8.6have an OH&S report prepared to ensure that he was not exposing himself to any potential claims in this regard;
5.9 whilst it was open to Mr Albayrak to make an application to the Court to terminate the liquidation, if he wished to proceed with making an application, it would not be sensible for Mr Strazdins to incur fees and disbursements with a view to trading the business on the weekend commencing 27 July 2019 – as in the event an order was made terminating the liquidation before 27 July 2019, those (not insignificant) costs would have been unnecessary;
5.10 if Mr Albayrak did proceed to make an application to terminate the liquidation, but was not able to obtain the order before the weekend commencing 27 July 2019, the natural result is that Mr Strazdins would not then be in a position to make the necessary arrangements to trade Zhivago in time for the weekend. Accordingly, Zhivago would not then be able to open for trade on the weekend commencing 27 July 2019;
5.11 if Mr Albayrak did proceed to make an application to terminate the liquidation order, the result of the application and its resolution was uncertain, and the Court may require Mr Strazdins to draft a report which might take a couple of weeks to prepare;
5.12 as an alternative to applying to the Court to seek an order terminating the liquidation, Mr Strazdins could call a meeting of the creditors of the Company for the purpose of Mr Albayrak proposing to creditors of the Company that Mr Strazdins be appointed as the Adminsitrator of the Company so that the Company can propose a Deed of Company Arrangement (“DoCA”) to see all debts repaid in full and control of the Company returned to Mr Albayrak; and
5.13 during the period in which the Company was under administration, Mr Strazdins could make arrangements to, and would (subject to any unforeseen circumstances) facilitate Mr Albayrak, Ms Kavouklis and Mr Kavouklis trading Zhivago.
6.During that meeting there was discussion about the two options, namely Mr Albayrak seeking the termination of the winding-up in Court or proceeding down the path of a voluntary administration and DoCA.[13]
[13] L8 at [5] – [6].
By the conclusion of the meeting, Mr McCusker says that Mr Albayrak and Mr Gowans agreed that a termination application would not be brought and steps would be put in place to commence the voluntary administration/deed of company arrangement process. In this regard, Mr Gowans said that he would do some research to see if the process could be dealt with more quickly than usual. It is Mr McCusker’s recollection that Mr Gowans said words to the effect that the voluntary administration/deed of company arrangement process would be “the quickest way home”.[14]
[14] L8 at [7].
Following the conclusion of the meeting on 25 July 2019, Mr Strazdins commenced the work required to allow the club to trade over the weekend of 27 and 28 July 2019, and to investigate the creditors, assets and liabilities of the company. The company traded over that weekend, by Mr Albayrak, with supervision from Mr Strazdins’ staff, in relation to managing the club’s takings, and trading debts, such as employees’ wages and liquor suppliers.
Mr Strazdins prepared a report to creditors, dated 30 July 2019.[15] He summarised the position of the company in the following way:
3 FUTURE OF THE COMPANY
My initial investigations into the Company revealed that the Company has more than sufficient liquid assets to pay all of its external creditors in full, however, does not have sufficient resources to satisfy two related-party loan accounts (to the director and his mother) which total approximately $900,000.
I subsequently met with the director, his family and his solicitor, who indicated that, if the Company entered into Voluntary Administration, a Deed of Company Arrangement would be proposed whereby the related party creditors would stand aside and all unrelated creditors would be paid 100c/$, and control of the business would pass back to the director.
Once the DoCA is wholly effective, an application will be made to the Federal Court to have the Winding Up Order terminated.
I am continuing to trade the business for the immediate future to allow this proposal to proceed.
[15] L4 at AJS 3.
A meeting of creditors was scheduled for 14 August 2019. Mr Strazdins advised that, at that meeting, he would seek approval of his remuneration in the sum of $65,000, with $35,000 being allocated to the period when the company remained in liquidation, and $30,000 allocated to the period from entry into voluntary administration to the finalisation of a deed of company arrangement. An agenda for the creditors’ meeting was enclosed with the report. One of the items on the agenda was to seek the approval of the creditors for Mr Strazdins to appoint himself as voluntary administrator of the company, pursuant to s 436B of the Corporations Act 2001 (“the Act”).
I understand that Mr Albayrak received the report to creditors on 1 August 2019. The club traded on the weekend of 3 and 4 August 2019, in the same manner as the previous weekend.
On 9 August 2019, Mr Albayrak filed an application in this Court to have the winding up of the company terminated pursuant to s 482 of the Act. He asked for the application to be heard as a matter of urgency, as a result of which it was listed for hearing later that afternoon. It is not in dispute between the parties that Mr Strazdins was given no notice of the s 482 application prior to its service on him, approximately one hour before the hearing.
At the commencement of the hearing, Mr Adams, on behalf of Mr Albayrak, drew my attention to exhibits SA 5 to A9. He submitted that these documents, the company’s accounts, profit and loss statement, and balance sheet indicated that the company had $486,000 in the bank, and total assets of $1,154,000, with current liabilities standing at $219,000. Total liabilities (both current and non-current) stood at $942,961, with total equity in the business being $211,000. The largest creditors of the business were Mr Albayrak and Mrs Kavouklis, both of whom indicated they did not seek repayment of their loans to the company.
Mr Adams then outlined the circumstances in which the company was placed into liquidation, and described it as
… a classic administrative mess … where the documentation was received, the gravity and importance of it wasn’t appreciated, it appears to have fallen between the cracks between the accountant and Seref himself and appropriate attention was not given to the need to turn up to the court.[16]
[16] T5.27-33.
It seems that Mr Albayrak says that neither the statutory demand, nor the originating application to wind up the company was brought to his attention, as a result of which the winding up order was made in his absence.
During that hearing, Mr Adams submitted that all outstanding creditors had been paid; he corrected this a moment later to submit that in fact, Return to Work Corporation, the petitioning creditor, had not been paid as at 9 August 2019.
Mr Adams submitted that if the winding up order were to remain in place, there was a real risk to the business, its reputation and its employees.
Mr Adams then drew my attention to the report to creditors, and Mr Strazdins’ expectation that all external creditors would be paid 100 cents in the dollar. He then turned to the remuneration forecast by Mr Strazdins, and submitted that the estimate of $65,000 in fees to the liquidator was the “principal driver”[17] to the filing of the s 482 application. He then proceeded to outline some of the relevant matters to be considered when dealing with such applications.
[17] T10.7.
While a solicitor, Mr Dollman, appeared for Mr Strazdins at this hearing, it was clear that his instructions were extremely limited, as he had been served with the application only about an hour earlier. Mr Dollman submitted that, as the club was trading, he did not understand the urgency of the application, and sought an adjournment to allow his client to consider the material. He further indicated that Mr Strazdins was not in a position to indicate whether there remained any other outstanding creditors, in addition to Return to Work Corporation.
I adjourned the matter to 2pm on 13 August 2019, to allow time for the liquidator to consider Mr Albayrak’s application. While I did not require Mr Strazdins to provide a report pursuant to s 482(2) of the Act, I indicated that if he wished to file any affidavit material in relation to the application, he should do so by 10am on 13 August 2019.
The club traded over the weekend of 10 and 11 August 2019.
On 13 August 2019, Mr Strazdins filed a lengthy affidavit, L4. Mr Albayrak also filed a further affidavit, A10.
At the adjourned hearing, Mr Evans appeared on behalf of Mr Strazdins. At the commencement of his submissions, he made it clear that Mr Strazdins was not opposing the orders sought by Mr Albayrak; rather, he sought to bring to the attention of the Court matters within his knowledge which might be material to the exercise of my discretion in this matter. Mr Evans provided a most useful written outline. I indicated a number of matters about which I sought submissions from the parties. In summary, those issues were:
·The current financial position of the company, given that the records with which I had been provided were only current to 31 March 2019.
·The current tax liability of the company, in relation to which there was no information before me.
·The fact that Mr Albayrak had not yet provided financial records to Mr Strazdins, nor had he provided access to the company’s electronic accounting system.
·The fact that, at the previous hearing, it was submitted that Mr Albayrak had no notice of Return to Work Corporation’s action, when it appeared from material exhibited to L4 that Mr Albayrak was well aware of the outstanding debt, and on notice from Return to Work Corporation that they would be filing the application to wind up the company.
·The fact that there has been no explanation why the voluntary administration proposal has been abandoned by Mr Albayrak, when it appeared to have been entered into jointly by Mr Albayrak and Mr Strazdins.
Mr Adams submitted that the voluntary administration proposal was abandoned by Mr Albayrak, because he became concerned at the extent of the costs anticipated by Mr Strazdins in his report to creditors. I then adjourned the application to 14 August 2019, to allow Mr Adams to seek instructions on the other matters that I had raised.
Shortly before the hearing on 14 August 2019, Mr Albayrak filed a further affidavit, FDN 7. By this further affidavit, he sought to address the issues that I had raised the previous day. The affidavit itself is relatively long, and the material that it exhibits is extensive.
After hearing further from both Mr Adams and Mr Evans, I made an order terminating the winding up of the company. I ordered that $100,000 be paid into the Suitors Fund from the bank account of the company, pending a determination of Mr Strazdins’ fees.
Since then, Mr Albayrak and Mr Strazdins have been in dispute about Mr Strazdins’ fees.
Mr Strazdins seeks remuneration and disbursements in the sum of $101,665.35, plus the costs associated with his application for remuneration. The sum of $101,665.35 includes his costs associated with the liquidation, proposed voluntary administration and deed of company arrangement of the company, and the s 482 application.
The evidence
To a large extent, I have already outlined the evidence relied on by Mr Albayrak and by Mr Strazdins. Perhaps the most important area of difference between the evidence relied on by Mr Albayrak, and that relied on by Mr Strazdins, is in relation to the contentions made by each of them as to the circumstances in which Mr Strazdins would allow the club to trade during the period of the liquidation. Mr Albayrak, Mrs Kavouklis and Mr Kavouklis all depose to Mr Strazdins saying to them that if they did not agree to the voluntary administration process he would not allow the company to trade. Mr Strazdins and Mr McCusker provide very different evidence. This is dealt with in more detail below.
As well as the affidavit evidence to which I have already referred, Mr Albayrak relied on the expert opinion of John Melluish. Mr Melluish is clearly an experienced liquidator, and no exception can be taken to his qualifications or his capacity to offer expert evidence in this matter.
Mr Melluish prepared a report, dated 4 November 2019, which was tendered as exhibit A3. He expressed the view that, where a company is wound up in circumstances such as these, where the director says that he was unaware of the winding up application, a prudent and diligent liquidator would encourage the director to seek legal advice in relation to a s 482 application.[18] The liquidator should then undertake his own enquiries as to the assets and liabilities of the company and attend to the protection of any assets. He should make specific inquiries of known creditors and determine whether the company should continue to trade and under what arrangements. The liquidator should arrange appropriate insurance and carry out a workplace health and safety check in relation to the company’s premises.[19]
[18] A3 at [10.3].
[19] A3 at [43].
Mr Melluish said that it should have been apparent within a short space of time that the company was able to meet all of its outstanding debts, except for its related party loans. At this point it should have been apparent that a s 482 application was likely to be successful.[20] Once he had reached that view, he should have ensured that any further work was done with a view to keeping costs down, prior to the application being brought.
[20] A3 at [44].
Mr Melluish made no criticism of the time charge method used by Mr Strazdins, nor did he criticise the hourly rates charged by Mr Strazdins and his staff. He expressed the view that the rates charged were in line with the market rates charged by insolvency practitioners in Adelaide at the relevant time.[21]
[21] A3 at [52] – [53].
Mr Melluish then provided an assessment of the costs that he believes should have reasonably been incurred, using two different methods. The first method, referred to in evidence as the checklist method, involved looking at the scope of the required work and undertaking a costing of that work, based on his experience of what would be required. This led to the conclusion that Mr Strazdins was entitled to remuneration in the sum of $28, 076.50 (exclusive of GST) for the work carried out with respect to the company. The second method used by Mr Melluish, and referred to as the adjustment method, involved taking the work actually charged by Mr Strazdins and his staff, and discounting it for work that Mr Melluish considered was not necessary or reasonable for a range of reasons. This led to an entitlement of $38,033.
Mr Melluish formed the view that, in allowing the company to trade, Mr Strazdins should have offered a licence arrangement to Mr Albayrak, which would have led to significantly smaller fees being incurred. He said that this view was based on the ability of Mr Albayrak personally to fund the business during the period that the company remained in liquidation, and that there was no legal impediment to such an arrangement.[22]
[22] A3 at [62] – [63].
Mr Melluish made no allowance for any work related to the company being placed into voluntary administration. He expressed the view that this process would be far more expensive that applying for the termination of the winding up.[23] He said that, even in circumstances where Mr Strazdins was advised by Mr Gowans that a s 482 application would not be filed, this option should have been further discussed with Mr Albayrak.[24]
[23] A3 at [64].
[24] A3 at [67].
As to the s 482 application, Mr Melluish expressed the view that it was appropriate for Mr Strazdins to file an affidavit with the court setting out his various conclusions reached after investigating the financial position of the company. It was also appropriate for him to attend court at the hearing of the application. However, it was not necessary for Mr Strazdins to prepare an analysis of the company’s profit and loss.[25]
[25] A3 at [75] – [79].
A number of documents were attached to Mr Melluish’s report, including the work, health and safety report prepared at the request of Mr Strazdins by Adelaide OHS Consultants (“the OHS report”). The report identified many problems with the procedures in place at the company’s premises, including out of date policies and procedures, no evidence of training or induction for staff, significant trip hazards and electrical hazards including overloading of power boards, obstruction of fire fighting equipment, a build up of rubbish outside the emergency exits and non-compliant sprinkler systems. In total, the OHS report identified seven actions that should be commenced immediately, and a further sixteen actions that should be commenced within seven days, to deal adequately with the risks and hazards posed by the premises.
In cross examination, Mr Melluish acknowledged that the higher figure reached using the adjustment method would be a reasonable figure for remuneration in this matter.[26] He also acknowledged that his report did not deal with any of the work carried out by Mr Strazdins after 23 August 2019.[27]
[26] T79.16-17.
[27] T81.13.
Mr Melluish conceded that, six days after the appointment of a liquidator, they would not be expected to have become aware of all of the matters relevant to the liquidation.[28] He also conceded that, as at 24 or 25 July 2019, there would be some uncertainty as to the cost of a s 482 application as compared to the cost of a voluntary administration process.[29] He further conceded that, if it was reasonable for Mr Strazdins to have undertaken the work in relation to the voluntary administration, then his objections in relation to those remuneration claims would fall away.[30]
[28] T83.38.
[29] T89.21.
[30] T91.34-37.
In relation to the trading of the company, the following exchange occurred between Mr Evans and Mr Melluish:
Q.Under liquor licensing legislation, are you aware there's a potential range of civil and criminal penalties for breaches of licence conditions.
A.Yes.
Q.And this was a licensed nightclub operating late at night, wasn't it.
A.Yes.
Q.And so if there'd been a breach of, for example, a sale of liquor to an under-18 person, an automatic fine - I'll ask you to assume under legislation - the liquidator would have been personally liable for the fine.
A.Yes.
Q.You agree with that. Isn't it important therefore that the liquidator not simply accede control of the running of the licensed premises to someone he's only known for a day or two, with that in mind.
A.Yes.
Q.So one can't responsibly say to the director, who the liquidator doesn't know, 'You just go off and run the business and I won't have any involvement in it whatsoever'.
A.It wouldn't be appropriate to do that, correct.
Q.It would not be, no. So it's reasonable, isn't it, that the director have some - at least some oversight of the operations of that business, isn't it.
A.The liquidator have some oversight, yes.
Q.Do you also agree with me that where a business is being traded in liquidation and debts incurred, for example rent, employees, it's reasonable and indeed necessary for the liquidator to ensure those debts are paid.
A.Yes.
Q.So he can't say to the director 'Go off from the business. I don't care about the rent and I don't care about the employees being paid', that wouldn't be appropriate at all.
A.No.
Q.So he has to monitor that, doesn't he.
A.Yes.[31]
[31] T94.19 – T96.13.
Thus, Mr Melluish appears to accept that some degree of oversight by Mr Strazdins and his staff was required for the ongoing operation of the club. He further agreed that the type of oversight required was not allowed for in the eighteen hours that he notionally allowed for negotiating a licence with Mr Albayrak.[32]
[32] T98.2-6.
Mr Melluish affirmed his position that it was not necessary for Mr Strazdins to address the company’s profit and loss in his affidavit prepared for the s 482 application, once the solvency of the company was taken into account. He indicated that where a company had $400,000 in the bank, and creditors of only $15,000, there was no need to undertake this analysis.[33]
[33] T10.33 - 102.7.
Mr Melluish agreed with Mr Evans, that normally an application pursuant to s 482 of the Act would be brought co-operatively with the director.[34] The following exchange then occurred:
Q.So just to remind you of the assumptions, we'll go back to the assumptions. So the liquidator had been told do the DOCA, there won't be a 482 application. Then three and a half weeks or thereabouts later the application turns up without notice. To ask the question do you accept that the liquidator would necessarily spend more time and more work in that scenario than if he'd had proper notice before the making of the application.
A.Yes.[35]
[34] T105.3-11.
[35] T107.30–38.
In re-examination, Mr Adams sought clarification from Mr Melluish about his position in relation to the cost advice that should have been given by Mr Strazdins. Mr Melluish said:
A.At one of those meetings, probably the second meeting on the 25th, it would have been reasonable to ask the first lawyer acting for Mr Albayrak, 'What do you think it would cost to bring a 482 application' and weigh that up against 'Well, if you want me to go down this voluntary administration DoCA path, I think it's going to cost 30, plus 35, plus 15 for the DoCA, plus 5 for preparing the DoCA', etc., etc., and make an assessment at that time as to which would be the cheapest.[36]
[36] T117.1-9.
He also reiterated his view that the business operated by the company was a small one, with limited engagement with creditors, and significant funds in the bank.[37]
[37] T120.1-11.
The legislation and the authorities dealing with a liquidator’s remuneration
The Insolvency Practice Schedule (Corporations) (“the Schedule”), set out in the schedules to the Act, relevantly provides:
60-10 Remuneration determinations
Remuneration determinations
(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.
Remuneration on a time-cost basis
(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.
More than one remuneration determination may be made
(5)To avoid doubt, more than one determination under this section may be made in relation to a particular external administrator of a company and a particular external administration of a company.
…
60-12 Matters to which the Court must have regard
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;
(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l) if:
(i)a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and
(ii) the matter is, or includes, remuneration of the external administrator;
the contents of the report on the review that relate to that matter;
(m) any other relevant matters.
There are many relevant, recent authorities which discuss how these provisions (or their predecessor provisions) should be applied. I note that, while in general, the applicable principles were not in dispute between the parties, their application to the facts of this matter were.
In Venetian Nominees Pty Ltd v Conlan,[38] the Court said:
It is to be borne in mind that a summary procedure is involved, not unlike that applicable to the taxation of solicitors’ costs, which si not necessarily subject to all the rules that would apply in an action: see Symphony Group Plc v Hodgson [1994] QB 179 at 193.
Some guidance can indeed be derived from the taxation of solicitors’ costs as solicitors, like provisional liquidators, are officers of the court whose costs are fixed as part of the supervisory function of the court. In particular, it is to be observed that the rules of evidence are ordinarily not strictly observed in the taxation of solicitors’ costs.
…
As a starting point, in our view, the onus is on the provisional liquidator to establish that the remuneration claimed is fair and reasonable. It is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues.[39]
[38] (1998) WAR 96.
[39] (1998) WAR 96 at 102.
In Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2),[40] Gordon J said that, while the Court, in Venetian Nominees, was dealing with a provisional liquidator, the principles set out in that case applied equally to liquidators. Her Honour went on to say:
The breadth of the statutory language – requiring the Court to take into account “any or all” of the matters listed – confers upon the Court a broad discretion as to the particular weight to be given to any of those matters, subject to the overriding requirement of reasonableness…[41]
(citations omitted)
[40] [2013] FCA 699.
[41] [2013] FCA 699 at [26].
While her Honour was dealing with the predecessor legislation to the Schedule, the terms of each are largely the same; I am of the view that her words apply equally to the provisions of the Schedule.
In Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr[42] (“Sakr”), the New South Wales Court of Appeal undertook a useful examination of the recent authorities, to determine the principles to be applied when determining a liquidator’s remuneration. It said, at [54] – [59]:
It is well settled that the onus is on the liquidator to establish that the remuneration claimed is reasonable and that 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: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; (1998) 16 ACLC 1653; Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) 65 ACSR 521; [2008] WASCA 61 at [28]-[29]. Although these two cases related to the legislation as it stood prior to the 2007 amendments, the principles referred to in them remain applicable. Further, it will be expected that the liquidator in supplying material to enable the Court to assess whether a remuneration claim was reasonable, would supply material by reference to the matters referred to in s 473(10).
That is not to say that the question of proportionality has no bearing on the task to be undertaken by the Court. As the Federal Court said in Templeton v ASIC (at [31]) the question of proportionality is a well recognised factor in considering the question of reasonableness and the factors in s 425(8)(d)-(e) and (g)-(h) (the equivalent to s 473(10)(d)-(e) and (g)-(h)) have as their unifying theme the concept of proportionality. The Court in that case recognised (at [32]) that 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. The Court also stated (at [33]), endorsing the observations of McClure JA in Conlan v Adams supra (at [47]), that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed, stating that that is what is encompassed in assessing the value of the services rendered.
Further, as was pointed out by Black J in Idylic Solutions Pty Ltd [2016] NSWSC 1292 at [50], evidence as to the percentage that remuneration constitutes of realisation, will at least provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect.
I would add two matters. First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in Warner, Re GTL Tradeup Pty Ltd supra at [71] it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it.
Secondly, there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. Indeed, as was pointed out in Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCCA 64 at [128]-[129] there is a public interest in liquidators bringing recovery proceedings such as proceedings against directors for breach of duty or insolvent trading and proceedings for recovery of unfair preferences. However, the liquidator is obliged to make any decision to bring such proceedings with care, and negligence in the exercise of the power to bring proceedings may lead to a liquidator being deprived of costs: Hall v Poolman supra at [144]-[145].
In making the above comments I am conscious of the criticisms that have been levelled against time based charging. The areas of criticisms generally speaking are first and principally that time spent represents a measure not of the value of the services rendered but of the costs of rendering them and, secondly, time spent is only one of a number of relevant factors to be considered: see Re Carton supra at 197; Mirror Group Newspapers supra at 648-652; Re Korda supra at [41]-[45]; Re AAA Financial Intelligence supra at [45]-[47]. There is force in those criticisms. However, it remains the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account the matters referred to in s 473(10). That must include, in my opinion, considering the work done by the liquidator, whether it was reasonable to carry it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, does not seem to me to be beyond the competence of the Court.
[42] [2017] NSWCA 38.
In Park & Muller (liquidators of LM Investment Management Ltd) v Whyte No 2[43] (Park v Whyte), Jackson J of the Supreme Court of Queensland relied on Sakr. In Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2)[44] (“Re Lock”), Besanko J referred to Sakr with approval, and said, at [285]:
It is important to note two other matters addressed by the Chief Justice (at [57]–[58]). First, a liquidator is entitled to be remunerated for work he or she is required to carry out even though the work will not augment funds available to creditors and shareholders. An example is the need to comply with statutory obligations. Secondly, a liquidator who acts reasonably in pursuing recoveries is entitled to be remunerated for his or her work in connection thereto, even though the liquidator may ultimately fail in making any recoveries.
[43] [2017] QSC 229 at [161] – [162].
[44] [2019] FCA 93.
He further said, at [446]:
As I have already said, the Act requires the Court, in determining or fixing remuneration, to take into account the extent to which work is reasonably necessary. Mr Gothard made the point that the requirement that the work be necessary is part of the professional standards and codes of practice and that part of the concept of “necessary” is a connection, or direct connection, with the administration…
While it is clear that the factors which must be taken into account will vary according to the facts of each case, the authorities make it plain that there are a number of overriding characteristics that must be borne by the work, for which remuneration is sought. The overriding requirement is that the work done and the remuneration sought by the liquidator must be reasonable. In determining reasonableness, regard must be had to proportionality; that is, whether the remuneration sought is proportional to the value of the insolvent administration, the benefit obtained from the work, the complexity or other difficulty encountered by the liquidator and the importance of the various tasks undertaken. There must be a nexus between the work undertaken, the administration and the interests of creditors generally. The onus is on the liquidator to establish that he is entitled to the remuneration sought. I must consider all of the material provided, including any expert evidence relied on, and decide whether the various charges of the liquidator are reasonable in the circumstances.
Mr Albayrak’s objections to the remuneration sought by Mr Strazdins
It is Mr Melluish’s opinion, and the position of Mr Albayrak, that the entirety of the costs associated with the voluntary administration/deed of company arrangement process (from here on in referred to as the voluntary administration process) should be disallowed. This is on the basis that:
44.…it should have been apparent to a prudent and diligent liquidator acting reasonably that an application for the termination of the winding up was likely to be successful.
45.Having formed a view that an application for the termination of the winding up was likely to be successful, a prudent and diligent liquidator acting reasonably would be conscious of ensuring that further work in conducting the liquidation was undertaken with the outcome in mind, and being mindful to keep remuneration charged to a minimum.[45]
[45] A3 at [44] – [45].
Mr Adams submitted that, by the middle of the second week of the liquidation, there was clear evidence to support the view that a termination application would be successful; thus, it was unreasonable for Mr Strazdins to adopt the more expensive voluntary administration process. Instead, he should have recommended the s 842 application. In cross-examination, when asked about the scenario where the director of a company was separately represented and sought the voluntary administration process, he said:
…if you formed the view in your own mind that one path was going to cost X and the other path was going to cost Y, and then you would say ‘Well, you do realise that this is going to be a more expensive route for you, but if you understand that and you want to take [that] path, then, fine’.[46]
[46] T86.17-23.
On this basis, Mr Adams submitted that the costs incurred on the voluntary administration process were unreasonably incurred and should be disallowed. He further submitted that, even if it had been reasonable to commence the voluntary administration process, once the full extent of the company’s creditors had become known, Mr Strazdins should have looked for a more cost effective means of bringing the liquidation to an end. At the very least, he should have advised of the additional costs that would be incurred by the voluntary administration process as compared to a s 482 application.
Mr Melluish also expressed the view that the majority of the remuneration claim relating to the trading of the club should be disallowed. It is his view that Mr Strazdins should have provided Mr Albayrak with a short term licence to operate the business. In reaching this view, he has made the assumption that there was no legal impediment to such a licence being offered.[47] He also makes the assumption that Mr Albayrak had sufficient personal resources to finance the business during the period of the liquidation, to allow him to operate under such a licence arrangement.[48] Mr Melluish makes an allowance of eighteen hours of the liquidator’s time for trading, and disallows the balance.
[47] A3 at [31], [62].
[48] A3 at [63].
In submissions, Mr Adams put to me that, even the allowance of eighteen hours, as recommended by Mr Melluish was generous, on the basis of the evidence of Mr Albayrak, Mrs Kavouklis and Mr Kavouklis that neither Mr Strazdins nor his staff played any role in the actual trading of the business.[49] He submitted that, despite Mr Strazdins’ characterisation of the club as a high risk business, there is no evidence that he or his staff undertook any supervision in respect of liquor licensing requirements, late night trade or security. He submitted that, in effect, Mr Strazdins left full responsibility of managing the club to Mr Albayrak and his staff, with no oversight by him.
[49] See, for example, their evidence at A15 at [45], [48], [51], [55], [59], A12 at [16] – [19], A13 at [10] – [12].
Apart from these two significant categories of remuneration, Mr Melluish expressed the view, that a number of other items claimed by Mr Strazdins should be discounted, either on the basis that the time spent on them was excessive, or that the description of the item is insufficient. For example, he significantly discounts the remuneration sought on account of dealing with the s 482 application on the basis that the charges claimed are excessive. I will deal with these issues in due course.
At their heart, the submissions put on behalf of Mr Albayrak stem from his belief that the only basis on which Mr Strazdins would allow the club to trade was if he was permitted to carry out the voluntary administration process. Each of Mr Albayrak,[50] Mrs Kavouklis[51] and Mr Kavouklis[52] deposes to Mr Strazdins’ telling them that he would only allow the club to trade if they agreed to the voluntary administration process. While Mr Adams, on their behalf, assured the Court and Mr Strazdins that they did not make allegations of coercion or duress against Mr Strazdins, he submitted that the only option presented to Mr Albayrak, which would allow the club to continue trading, was the voluntary administration process. Thus, while he specifically resiled from any suggestion of coercion or duress, the undertone of his submissions remained critical of the approach taken by Mr Strazdins.
[50] A15 at [21], [29], [69], [70], [72].
[51] A12 at [12].
[52] A13 at [10].
Relying on Besanko J in Re Lock, Mr Adams submitted that there was no nexus between the remuneration sought in relation to the voluntary administration process and the beneficial winding up of the company. Thus, he said that Mr Strazdins was not justified in seeking to identify further creditors or pursuing the voluntary administration process after about 29 July 2019. Indeed, Mr Adams submitted that it has not been demonstrated that the remuneration claimed for the voluntary administration process, trading and responding to the s 482 application was to the benefit of the liquidation at all. He further submitted that no evidence has been provided to show that an estimate of legal fees were provided to creditors or to Mr Albayrak, and that there was no nexus between the legal fees incurred by Mr Strazdins and the benefit of the shareholders and creditors of the company. He submitted that the remuneration sought by Mr Strazdins was in no way proportional to the value of the liquidation and its complexity.
Mr Adams submitted that Mr Strazdins should not have instructed counsel to attend at the hearing of the s 482 application. He also criticised the approach taken by Mr Strazdins at the hearing of the application. He said:
That is more particularly so when the liquidator maintained the illusion of not opposing the application. That being the case, if he was genuinely just providing information for the benefit of the Court, as an experienced liquidator, he needed to do no more than that. There was no argument to be won, no points of law to be made, (independent of those put by the applicant) and no occasion for an adversarial stance in a matter where, all creditors having been paid by Mr Albayrak, he had no more to do than confirm the process which had been undertaken to date. That did not require Counsel and it certainly did not require both affidavits and detailed written submissions. If the liquidator chose to engage Counsel, that was a matter for him. However, it is entirely unreasonable for those costs to be taken from the Company’s funds.[53]
[53] Submissions dated 6 April 2020 at [86].
Thus, he suggests that Mr Strazdins’ actions in participating in the application were tantamount to opposing the application, with the result that unreasonable legal costs were incurred.
Mr Strazdins’ position
Mr Evans, on behalf of Mr Strazdins, submitted that the correct approach to be adopted was that set out by the New South Wales Court of Appeal in Sakr. He also relied on Jackson J in Park v Whyte, where he said, at [163] – [164]:
… in determining remuneration it is not the function of the court to hypercritically assess the day by day activities or tasks carried out in the course of a complex administration over a lengthy period of time with the benefit of hindsight. In this context, it is sometimes remarked that the remuneration available to insolvency practitioners should be sufficient to encourage them to carry out the important public function of the administration of insolvent entities for the benefit of the creditors, investors (whether company members or fund members) and the public administration of the insolvency laws in general.
As well, the preparation of detailed affidavit material setting out extensive support for the correlation of individual or groups of line items and charges to particular tasks and functions of sufficient utility to be classed as reasonable remuneration is itself a time consuming and expensive exercise. In the usual course, those costs must be added to the costs of the application for remuneration to be paid to the relevant administrators or liquidators.
Mr Evans’ submissions were underpinned by Mr Strazdins’ position that Mr Albayrak consented, without reservation and with the benefit of independent legal advice, to the voluntary administration process, and then changed his mind without prior notice to Mr Strazdins. He submitted that Mr Albayrak’s own evidence supports this position, as does the evidence of Mr McCusker. Once this is accepted, it cannot be unreasonable for Mr Strazdins to have acted accordingly; that is, by undertaking the work for the voluntary administration process.
Mr Evans submitted that it appeared that Mr Albayrak believed that Mr Strazdins had a duty to bring the s 482 application. He submitted that, while a liquidator may make such an application, there is no duty that he do so, and that in the circumstances, Mr Albayrak himself was the appropriate person to make that application. No criticism can be levelled at Mr Strazdins for not making the application in circumstances where, Mr Albayrak, independently advised, chose not to do so himself and elected to proceed with the voluntary administration process.
Mr Evans submitted that, even at the time that the report to creditors was prepared, it was not obvious, as asserted by Mr Albayrak, that the company was solvent. On the face of it, the company’s debts exceeded its assets; that is, while it had sufficient funds to pay its external creditors, it did not have funds to meet the debts of the related party creditors. It appears that his understanding was, at that time, that the related parties would defer their loans only if the company entered into voluntary administration.
As to Mr Albayrak’s objection to the remuneration sought for trading, Mr Evans noted that Mr Melluish in fact disallowed all amounts claimed in this regard, and substituted an amount based on the time that he considered was required to put in place a licensing arrangement. However, Mr Melluish accepted in cross-examination that personal liability for breaches of the liquor licence would always remain with the liquidator; thus, a licence arrangement allowing Mr Albayrak to operate the club was not completely straightforward. Mr Evans submitted that it would be entirely inappropriate for a liquidator to delegate all responsibility of running the business to a director whom he had only just met, while remaining personally liable for debts incurred through trading and breaches of the liquor licence. Further, it would be inappropriate not to supervise the company’s cash takings from trading. He submitted that a court should not generally interfere with a liquidator’s commercial decisions unless fraud or bad faith on the part of the liquidator are demonstrated.
As to the ultimately successful s 482 application, Mr Evans submitted that this should not be assessed with the benefit of hindsight. He put to me that, at the second meeting between Mr Strazdins and Mr Albayrak on 25 July 2019, it was impossible to assess the likelihood of success of the application.
In relation to the remuneration incurred in relation to trading the club, Mr Evans submitted that many of the expenses incurred were related to the setting up of the trading period by the liquidator; they were not recurring costs, but were one off costs that needed to be incurred up front prior to the commencement of trade. He further noted that the costs incurred do not take into account the earnings of the club through trading; thus, the remuneration sought by Mr Strazdins does not represent a net loss to the company.
In relation to the remuneration sought for the termination application, Mr Evans noted that the discounts made by Mr Melluish related to what he regarded as excessive time claims. He noted that Mr Melluish’s evidence was that it was appropriate for Mr Strazdins to prepare an affidavit and to attend court, but that he should not have analysed the profitability of the company, nor should allowance have been made for the fact that the hearing was adjourned on a number of occasions.
Mr Evans submitted that the way the application was brought by Mr Albayrak led to more expenses being incurred that would have been the case if the application had been prepared collaboratively with Mr Strazdins. Because it was filed without notice to him, he was required to undertake a large amount of work as a matter of urgency. It also led to various omissions from Mr Albayrak’s own affidavit material, which may not have been the case if a consultative approach had been adopted.
As to Mr Melluish’s criticism of the briefing of counsel by Mr Strazdins for the s 482 application, Mr Evans submitted that it was neither improper nor unreasonable. Mr Albayrak himself retained counsel, significant issues relating to the financial position of the company were involved, and this type of application was not commonplace.
Consideration
Before addressing the different work streams in relation to which remuneration is claimed, I must address a more fundamental issue. That issue is whether Mr Strazdins is entitled to claim any remuneration at all in relation to the voluntary administration process, and whether, in relation to trading the business, he should be restricted to remuneration only in relation to arranging a licence for Mr Albayrak to manage the business. These two areas are responsible for the majority of the reductions recommended by Mr Melluish.
Mr Melluish has made no allowance for any work carried out in relation to the voluntary administration process. He expressed the view that:
…it should have been apparent within a short space of time that with the exception of the related party loans, the company was in a position to meet all of its outstanding debts. With this knowledge it should have been apparent to a prudent and diligent liquidator acting reasonably that an application for the termination of the winding up was likely to be successful.
Having formed a view that an application for the termination of the winding up was likely to be successful, a prudent and diligent liquidator acting reasonably would be conscious of ensuring that further work in conducting the liquidation was undertaken with that outcome in mind, and being mindful to keep remuneration charged to a minimum.[54]
[54] A3 at [44] – [45].
He reiterated this view in cross examination.[55] However, he somewhat resiled from this opinion, when he said the following:
Q.Going back to my assumptions, that is to say a clear statement by the director and his lawyer that they're not going down the 482 path but by the DoCA and the voluntary administration path, do you agree it's not unreasonable in that assumed fact situation for the liquidator to adopt the voluntary administrator and DoCA path.
A. Together with other potential alternatives, yes.[56]
…
Q.So looking again onto the two assumptions I've asked you to make, it's difficult to criticise the liquidator in that scenario for going down the voluntary administration process, isn't it.
A.Under those assumptions, yes.[57]
[55] T84.21-27.
[56] T.88.10–17.
[57] T89.28–32.
While these answers appear to be a little equivocal, he appears to accept the proposition that, if Mr Strazdins had been advised by both Mr Albayrak and Mr Gowans that Mr Albayrak did not want to bring a s 482 application and wished to pursue the voluntary administration process, it would not be unreasonable for Mr Strazdins to have undertaken the work in relation to the voluntary administration process.
As I have previously set out, there is no one account of what occurred at the meetings on 24 and 25 July 2019. Only Mr Albayrak gives evidence that the voluntary administration process was discussed on 24 July 2019. Mr Strazdins says that the prospect of a s 482 application was raised by Mr Gowans at that meeting.[58] Mr McCusker further deposes that he had a discussion with Mr Gowans about the prospect of a s 482 application on 24 July 2019, prior to the first meeting with Mr Strazdins,[59] and Mr Strazdins deposes that he received a telephone call from Mr Gowans on 24 July 2019, prior to the meeting, advising that a s 482 application would not be made.[60] All deponents who have provided an account of the meeting on 25 July 2019 agree that the voluntary administration process was discussed at this time. Each of Mr Albayrak’s witnesses, however, say that at the meeting on 25 July 2019, Mr Strazdins told them that he would only allow the company to trade if they agreed to the voluntary administration process. It is the evidence of Mr McCusker and Mr Strazdins that there was a discussion about a s 482 application and about the voluntary administration process and that at the end of that discussion, both Mr Albayrak and Mr Gowans agreed that the s 482 application would not be made, and that the voluntary administration process should be pursued. Mr Strazdins denies that he told Mr Albayrak that he would only allow the company to trade if he adopted the voluntary administration process; he says that he suggested that, if Mr Albayrak intended to file a s 482 application, it might not be worth spending the money to put in place the arrangements needed to allow the club to trade in the meantime.[61] This is supported by the evidence of Mr McCusker.[62]
[58] L6 at [7.1].
[59] L8 at [3].
[60] L4 at [10].
[61] L6 at [7.6].
[62] L8 at [5.9] – [5.10].
None of Mr Albayrak, Mrs Kavouklis, Mr Kavouklis or Mr McCusker was called for cross-examination. No account was obtained from Mr Gowans. Mr Strazdins was cross-examined, but these issues were not addressed with him. As a result, I am left with different accounts as to what occurred, and no way of determining whose account is preferable. In my view, however, this does not prevent me from reaching a decision as to whether it was reasonable for Mr Strazdins to undertake the work required for the voluntary administration process, and so be entitled to claim remuneration for it.
In my view, Mr Strazdins is entitled to claim for remuneration incurred in the voluntary administration process. While it may be the case that Mr Albayrak was inexperienced in insolvency matters and was not previously familiar with terms such as “voluntary administration” and “deed of company arrangement”, nor was he in any way conversant with the terms of the Act, he was, throughout, assisted by very experienced practitioners. At the meeting on 24 July 2019, he was accompanied by Mr Gowans; on 25 July 2019, he was assisted by Mr Gowans and Ms Miller. Shortly after that, he enlisted the assistance of Mr Vaezi. Thus, he has been advised consistently by competent, experienced lawyers, whose role it was to give him independent legal advice. At any time after he became aware of the winding up order, he could have filed a s 482 application; he chose not to do so until 9 August 2019. He cannot now sheet home the consequences of that to Mr Strazdins.
In the limited concessions made by Mr Melluish in his cross-examination, he appeared to accept that, in circumstances where a director was independently advised, and had rejected the s 482 option, it was not unreasonable for Mr Strazdins to commence the voluntary administration process. I reject the criticisms that Mr Adams sought to make of Mr Strazdins in relation to the conduct of the meetings held on 24 and 25 July 2019. Mr Adams appeared to suggest that by 25 July 2019, Mr Strazdins should have been in a position to recognise that the company was solvent. Nothing could be further from the truth. As at 25 July 2019, once Mr Strazdins became aware of the related party loans (which were not disclosed by Mr Albayrak, Mrs Kavouklis or Mr Gowans the previous day) it was in fact clear that the company was not solvent, unless Mr Albayrak and Mrs Kavouklis agreed to defer payment of their loans. Further, as at 25 July 2019, Mr Strazdins had in his possession only draft accounts for the company and had not received the company’s books and records. Indeed, his evidence was that he never received the company’s books and records in the time that the liquidation was extant.[63] To suggest that Mr Strazdins should have been in a position at that time to recommend a s 482 application, on the basis that it was bound to be successful, is, in my view, fanciful.
[63] T67.3.
Even at the time that he prepared the report to creditors, I do not accept that Mr Strazdins should have recommended to Mr Albayrak that the voluntary administration process be abandoned in favour of a s 482 application, given that Mr Albayrak continued to be represented by Mr Gowans. The situation may have been different if Mr Albayrak had not been represented; as he was, it is to be expected that he would obtain his own advice on the best way to proceed, from his own lawyer. In my view, Mr Strazdins was entitled to rely on Mr Gowans to advise appropriately his own client. He was justified in continuing to act on the request of Mr Gowans and Mr Albayrak, made on 25 July 2019, to undertake the work for the voluntary administration process.
I draw no conclusions or inferences from Mr Albayrak’s allegation that Mr Strazdins said that he would only allow the company to trade if he agreed to the voluntary administration process. Given that Mr Albayrak has assured the Court that he makes no allegation of coercion or duress against Mr Strazdins, all I have taken those statements to mean, is that it was Mr Albayrak’s understanding that that was what Mr Strazdins said. I take that matter no further, save to reiterate my view that, given that Mr Albayrak was represented by a competent, experienced lawyer, Mr Strazdins was entitled to treat his request that he commence the work for the voluntary administration process, as full authority for him to do so.
In submissions, Mr Adams put to me:
From the first day of appointment, Mr Albayrak was very clear and insistent that the liquidator look for and adopt the quickest and least expensive way of returning the Company to him;[64]
[64] Submissions dated 6 April 2020 at [46.7].
That is not supported by the affidavit evidence before me. What is clear is that Mr Albayrak was very insistent that the company continue to trade. Mr Albayrak’s evidence was:
When [Mr Strazdins] informed me that he now controlled the company, I was very concerned and told him that I had an important promoter event this Saturday (278th July 2019) and that it was very essential that the Club stay open because the promotor (sic) had sold tickets to this event, and that if the event didn’t go ahead it would very severely impact on my business reputation with the promotor (sic) and be to the detriment of the Club, the future revenue of my business and to the company. I asked if there was some way we could keep the Club open and go to the Court to explain the situation and get the order overturned.[65]
…
I told [Mr Strazdins] I only trade 2 time a week, on the weekend and that reputation was crucial for my business. I live off the income earnt on a Sunday night, and if I was to be shut down for weeks I told him I was scared my reputation and that of the company and its business might be ruined and that people might stop coming in on Sunday too, even if it did reopen in another few weeks.[66]
[65] A15 at [12].
[66] A15 at [14].
While Mr Albayrak alludes to being shocked at the estimated expense involved in the voluntary administration process, there is no evidence that he asked Mr Strazdins to adopt the approach that would be quickest and least expensive in returning the company to his control. It appears that he sought the process that would be most likely to allow the company to continue to trade during the life of the liquidation.
Mr Adams further submitted that it was a matter of fact that:
All debts of the Company were able to be paid within 2 business days, (as Mr Albayrak did, from his own funds) so that the Company had no creditors seeking payment;[67]
[67] Submissions dated 6 April 2020 at [46.3].
Mr Adams does not specify from when Mr Albayrak was able to pay the company’s creditors within two business days. I have assumed that it is two business days from 30 July 2019, as that is the date in the paragraph immediately preceding that submission. On this basis, it is not clear to me that this has been established. The company’s creditors were not paid from Mr Albayrak’s own funds within 2 business days. Save for wages, Mr Albayrak made no move to pay the company’s creditors until 9 August 2020, the day on which the s 482 application was filed,[68] except for Derringers Hire and Return to Work Corporation. Derringers Hire was paid in three tranches, on 12 July 2019, 7 August 2019 and 13 August 2019; the amount owing to the petitioning creditor, Return to Work Corporation, was not paid until 12 August 2019. Thus, it is incorrect for Mr Adams to submit that the company had no creditors seeking payment. In fact, Return to Work Corporation remain unpaid until some days after the s 482 application first came on for hearing.
[68] A10.
I further reject the submission by Mr Adams that:
Furthermore, it stretches the bounds of credibility to advance the proposition that Mr Albayrak, who was desperate to get his company back as quickly and cost effectively as possible, would have instructed the liquidator to adopt a more expensive, lengthy and complex method for obtaining return of his company, over the relatively short time frame and cost of bringing a s.482a application. That it was short and much less costly is evidenced by the fact that the application was able to be brought within 24 hours, all creditors paid within two business days and every query raised by the liquidator in his affidavit responding to the application answered in less than 24 hours.
It equally stretches the credibility to the point of farce that an experienced liquidation lawyer, as the liquidator describes Mr Gowan, would have recommended to his client, or asked the liquidator for a process manifestly more expensive than a termination application, if any alternative option had been given by the liquidator or the liquidator had made clear the additional costs he would charge for a VA/DoCA process over a direct s482a application.[69]
[69] Submissions dated 6 April 2020 at [73] - [74].
Mr Adams’ characterised L4 as “effectively opposing the application for termination”.[80] He submitted that Mr Strazdins had known of all creditors of the company since 30 July 2019,[81] and that he “knew the company was solvent, as a matter of law, at latest by 30 July 2019”.[82]
[80] Submissions dated 6 April 2020 at [44.15].
[81] Submissions dated 6 April 2020 at [45.2].
[82] Submissions dated 6 April 2020 at [46.1].
In relation to the briefing of counsel for the s 482 application, Mr Adams submitted:
Mr Melluish also confirmed …that it was not reasonable to have engaged Counsel to appear in Court following the first hearing of the application. Mr Melluish again reinforced that it was not a particularly complex s 482a application and did not warrant, on the facts and circumstances of the matter, the engagement of Counsel by the liquidator, particularly where the party ultimately paying for it was not consulted or given any say in whether that very significant expense should be incurred.
That is more particularly so when the liquidator maintained the illusion of not opposing the application. That being the case, if he was genuinely just providing information for the benefit of the Court, as an experienced liquidator, he needed to do no more than that. There was no argument to be won, no points of law to be made, (independent of those put by the applicant) and no occasion for an adversarial stance in a matter where, all creditors having been paid by Mr Albayrak, he had no more to do than confirm that the process which had been undertaken to date. That did not require Counsel and it certainly did not require both affidavits and detailed written submissions.[83]
(citations omitted)
[83] Submissions dated 6 April 2020 at [85] – [86].
In my view, Mr Adams has not made out the factual basis for any of these submissions. In reaching this view, I have reviewed all of the material that was tendered at the hearing of this application. In addition, I reviewed the transcript of the hearings before me on 9 August 2019, 13 August 2019 and 14 August 2019.
At no time did Mr Strazdins oppose the application for termination of the winding up. At the hearing on Friday, 9 August 2019, Mr Dollman on behalf of Mr Strazdins advised me that Mr Strazdins had not had an opportunity to consider the application, and the material underpinning it, or to obtain advice on it. This was because Mr Strazdins was served with the application and supporting affidavit material at 1.35pm on 9 August 2019, with the hearing commencing at 2.48pm. He further noted that the debt to the Return to Work Corporation had not yet been paid (despite Mr Adams’ submission to the contrary) and that there was no urgency in having the order made on that day, as the company continued to trade. He also advised that Mr Strazdins was not in a position to confirm that there were no other creditors. He therefore sought an adjournment to allow Mr Strazdins to consider the application and seek advice.
After I indicated that I would adjourn the matter to allow Mr Strazdins to consider the application, Mr Adams made this submission:
MR ADAMS: The suggestion has been made on my instructions that if an application were brought to the court, that the liquidator might exercise their power to prevent trading from taking place this weekend.[84]
[84] T16.38 – T17.3.
He then asked for the winding up order to be suspended or stayed. Mr Dollman responded:
MR DOLLMAN: Your Honour I've just had a word with my client he's never given any indication that the outcome of this hearing would lead to a position of ... trade and we'd ask you to make the orders as originally foreshadowed.[85]
[85] T18.19–23.
While the transcript is incomplete at this point, my recollection is that Mr Dollman advised that Mr Strazdins has never indicated that he would cease to trade the company if a termination application was brought. He indicated that, while Mr Strazdins was not prepared to give an undertaking that the company would continue to trade, his current instructions were that the club would continue to trade.[86] Mr Adams then asked me to grant an injunction preventing Mr Strazdins from closing the club. I refused to grant such an injunction. I accepted Mr Dollman’s submission that the liquidator needed to retain some discretion as to trade, to respond to issues that might arise in respect of the liquor licence or some other matter.
[86] T18.35 – T19.4
I adjourned the matter to Tuesday 13 August 2019.
In relation to the affidavit filed by Mr Albayrak on 9 August 2019, A9, it is important to note a number of matters. First, at [9], he provides a list of the company’s creditors known to him at the date of the liquidation. He does not include Return to Work Corporation in this list. This is a most unusual, and material, omission, as Return to Work Corporation was the creditor on whose application the winding up order was made.
Secondly, Mr Albayrak deposes at [10] to having paid all of the creditors listed in [9]. No evidence of these payments is provided in A9. Mr Adams, in response to my question whether Return to Work Corporation had been paid (in the context of his submission that all outstanding creditors at the time the winding up order had been paid) advised me that it had been paid.[87] These instructions to Mr Adams were clearly incorrect, as pointed out by Mr Dollman, and as became clear when A10 was filed on 13 August 2019.
[87] T6.4-7
Thirdly, Mr Adams pressed for the order to be made, despite not having giving Mr Strazdins any notice of the application prior to its being served. It was most unrealistic to expect that any judge would make the orders sought in the absence of any consideration of the application by the liquidator. In my view, the adjournment was inevitable.
On 13 August 2019, Mr Strazdins filed L4 and Mr Albayrak filed A10.
In L4, Mr Strazdins confirmed that he had not been provided with the books and records of the company, save for the records that were at the premises at the time the winding up order was made. He confirmed that, on 1 August 2019, he had sent a demand pursuant to the Act to the company’s accountant for its books and records, but had not yet received a response. Mr Strazdins confirmed in re-examination that in fact, his office never received the books and records of the company during the period that the company was in liquidation.[88] He deposed to having received proofs of debt from three creditors, including the Australian Taxation Office and Return to Work Corporation, and at the time that he affirmed his affidavit, none of them had been withdrawn, indicating that they had not been paid. He listed the additional creditors of the company of which he was aware. He deposed that he had not received any evidence that they had been paid. He had not yet called for proofs of debt, thus he could not rule out that there might be further creditors. He noted a number of anomalies in the financial records that he had, which he had not been able to check as he had not yet received the company’s books and records. He provided an update of the current financial position of the company, including its trading revenue since the order was made. He provided a summary of the expenses he had incurred since appointment, with an estimate of future expenses, and a summary of the costs of the liquidation. This was provided at the request of Mr Adams.
[88] T67.2-3.
In addition, Mr Evans, who by that time was instructed to appear on behalf of Mr Strazdins, provided me with a brief outline of submissions. In [2] of these submissions, he stated:
The liquidator takes a neutral position with respect to the s 482(1) application to terminate or stay the winding-up of the Company.[89]
[89] Submissions dated 13 August 2019.
Mr Evans outlined, in brief, the relevant principles to be applied in determining whether a winding up order should be terminated. He noted a number of matters, identified as relevant by the authorities, which had not been addressed by Mr Albayrak in A9. He addressed the question of the liquidator’s costs, as requested by Mr Adams.
Nowhere in his affidavit does Mr Strazdins express any view as to whether the orders sought by Mr Albayrak should be made. In his submissions, Mr Evans specifically states that he takes no position on this question. In my view, the information provided by Mr Strazdins in L4 was provided in good faith to assist me in making a decision on Mr Albayrak’s application. I am also of the view that the written submission were similarly provided to assist me in appropriately addressing Mr Albayrak’s application.
A10 filed by Mr Albayrak, provided evidence that the various creditors referred to by him in A9 had been paid.
At the commencement of the hearing on 13 August 2019, Mr Adams again pressed me to make the orders sought. Mr Evans again reiterated that Mr Strazdins did not oppose the orders sought but that he had sought to bring to my attention, as an officer of the Court, the matters that he considered might go to the exercise of my discretion.
I then outlined five matters on which I required clarification from Mr Albayrak. I adjourned the hearing to 14 August 2019, to allow Mr Adams to take instructions on the matters raised by me.
On 14 August 2019, Mr Albayrak filed FDN 7. The affidavit extended to some thirty-nine paragraphs and the exhibits, while not paginated, were extensive. This material sufficiently answered the questions that I had raised on 13 August 2019. This material was dealt with by Mr Adams in submissions. Mr Evans again indicated Mr Strazdins’ neutrality to Mr Albayrak’s application.[90] He then made some submissions in relation to the material contained in FDN 7 and addressed the question of Mr Strazdins fees and expenses.
[90] T10.31-32.
Mr Albayrak’s argument in this matter has been predicated on the fact that Mr Strazdins would not allow the company to trade if he made the s 482 application, and that he, de facto, opposed the s 482 application. I reject both of those contentions, save to say that I accept that it is Mr Albayrak’s honest belief that Mr Strazdins would not allow the company to trade unless Mr Albayrak agreed to the voluntary administration process.
Mr Albayrak, Mrs Kavouklis and Mr Kavouklis have given one version of the discussion that occurred in relation to a s 482 application as compared to the voluntary administration process. Mr Strazdins and Mr McCusker have given a very different version. None of Mr Albayrak, Mrs Kavouklis and Mr Kavouklis was cross-examined; Mr Strazdins’ cross-examination did not canvass this topic. As a result, I am not in a position to make a decision as to whose version is preferable.
Nonetheless, I am prepared to find the following. Mr Albayrak was, throughout, represented by solicitors who were experienced insolvency lawyers. He met, with his lawyers and Mr Strazdins, at length in the first thirty-six hours after the winding up order was made. Both the s 482 application and the voluntary administration process were discussed. Mr Albayrak’s priority was ensuring that the company continued to trade over the upcoming weekend. At any time, either before or after Mr Strazdins prepared the report to creditors, Mr Albayrak could have filed the s 482 application. Indeed, if the solvency of the company was so obvious, it begs the question, why did he not do so prior to 9 August 2019. Mr Albayrak was in a strong position, having had lawyers instructed as soon as he became aware of the winding up order, to take his own advice, and make his own decision on whether he should make the s 482 application, and whether, as an officer of the Court, Mr Strazdins would be able to cease trading the company if this course was not in the best interests of its creditors and shareholders.
The contention that Mr Strazdins opposed the s 482 application is simply not borne out by his affidavit material, the written submissions, or the transcript of the three hearings leading up to the termination of the winding up. In my view, Mr Strazdins was merely fulfilling his duty as an officer of the Court by bringing to my attention all of the matters that he considered relevant to the exercise of my discretion. I found his submissions helpful and objective.
I reject Mr Adams’ criticism of Mr Strazdins, that he failed to contact Mr Albayrak or his advisers between the hearing on 9 August 2019, and the filing of L4 on 13 August 2019. Indeed, given the somewhat confrontational note on which the hearing ended on 9 August 2019, it would have been a matter of some surprise to me had he done so. Mr Albayrak had not sought Mr Strazdins’ input in formulating his affidavit material, he had not done him the courtesy of giving him any warning of the application, and he had made veiled accusations of impropriety against Mr Strazdins by inferring that Mr Strazdins would not allow the company trade merely because he had brought the s 482 application, in clear breach of his obligations to undertake his duties in good faith and as an officer of the Court.
The matters raised by Mr Strazdins in L4 and his submissions arose directly out of the authorities dealing with applications under s 482 and Mr Albayrak’s own affidavit material. In Leveraged Capital Pty Ltd (in liq) v Modena Imports Pty Ltd (in liq),[91] Palmer J said:
[91] [2010] NSWSC 739.
The particular circumstances of this case throw into sharp relief the role of the Court in an application of this kind. It is not the traditional role of umpire in a contest between adversaries, where the Court takes no part in the contest other than to ensure a fair trial and, at the end, to give a decision in favour of one of the contestants. On the contrary, in applications such as this, many of which have no contradictor, the Court is vigilant to protect the public interest.
Protecting the public interest is not confined to ensuring that a company, if released from liquidation, will be able to trade solvently. Public interest will also include ensuring that the creditors who are to be bound by a DOCA are treated reasonably and fairly. Further, protecting the public interest includes upholding commercial morality: the Court should not, by granting such an application, ignore and thus be seen to condone, conduct by the company’s officers which has breached standards of behaviour required by the law. Those who have already offended against those standards should not lightly be given the opportunity of doing so again.
A judge may feel disquiet about a transaction for which the Court’s sanction or approval is required, such as termination of a liquidation or approval of an arrangement or reconstruction under Pt 5.1 Corporations Act. The disquiet may arise either from the terms of the transaction or because of the reputations of those involved. In such a case, the judge is entitled to ask for assistance from ASIC or from some other body or person having a legitimate interest in the proper scrutiny of the proposal: see generally Corporations and Markets Advisory Committee Report “Members Schemes of Arrangement” December 2009, paras 2.3.2 and 6.4.2. Such a course of action has been followed in cases such as Re Stork ICM Australia Pty Ltd [2006] FCA 1849 per Lindgren J at [11]-[12].
…
In an application under s 482, the following considerations, derived from the decision of Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526, at 533, are useful guidelines although they do not constitute an exhaustive check list:
– the applicant must make out a positive case for the favourable exercise of the Court’s discretion;
– the applicant must show the nature and extent of the creditors, and whether all debts have been discharged;
– the attitude of creditors, contributories and the liquidator is a relevant consideration;
– the applicant must show the current trading position and general solvency of the company;
– the applicant must provide a full explanation of any non-compliance by the directors with their statutory duties;
– the applicant must explain the general background and circumstances leading to the winding up order;
– the applicant must show the nature of the company’s business and whether the conduct of the company was in any way contrary to “commercial morality” or “the public interest”.
See e.g. Anderson v Palmer [2002] NSWSC 192 at [5] per Barrett J; Masri Apartments Pty Ltd (in liq) v Perpetual Nominees Ltd (2004) 209 ALR 86 at [18]; Dubolo Pty Ltd v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723, at 725 per Santow J.[92]
[92] [2010] NSWSC 739 at [8] – [13].
Palmer J makes it abundantly clear that the Court plays a significant role in applications such as this. The role of the Court is not simply to endorse the position of the applicant, but to scrutinize carefully the application made, to ensure that it is appropriate in all of the circumstances. It must consider carefully the material exhibited in support of the application, and any other material that is provided which adds to the picture surrounding the company and its circumstances. The Court is entitled to seek assistance from a person with “a legitimate interest in the proper scrutiny of the proposal”. In my view, Mr Strazdins was, in this matter, such a person.
Nor is it the role of the liquidator to “rubber stamp” the position of the person making the application. In my view, Mr Strazdins brought a far more nuanced approach to the issues to be addressed, than did Mr Albayrak, particularly in relation to issues such as the treatment of the related party loans, and the analysis of the accounts that were exhibited to FDN 7.
I reject the submission that Mr Strazdins should not have briefed counsel for the hearing on 13 August 2019 and thereafter. Given the implied criticisms made of Mr Strazdins at the end of the hearing on 9 August 2019, it was entirely appropriate for him to do so. He should be entitled to the costs associated with briefing counsel.
I have no doubt that the costs of Mr Strazdins in dealing with the s 482 application were significantly increased by the fact that he was given no prior notice of the application. Part of these costs would have been incurred by the fact that the application was listed as a matter of urgency, and the very short period of the adjournment, between the first and second hearings. This period was very short, and no doubt led to inefficiencies in the preparation of L4; however, it was short because of the urgency with which the application was imbued by Mr Albayrak.
In my view, Mr Melluish, in his report, does not sufficiently take into account the circumstances of this matter. I note, in particular, that he was not provided with the transcript of any of the hearings that related to the s 482 application. He has not been able to assess the level of hostility and suspicion that Mr Albayrak clearly felt towards Mr Strazdins, and the fact that Mr Strazdins was required to address his conduct of the liquidation in light of this approach.
In my view, Mr Melluish’s deduction of $6,889 should be reinstated to Mr Strazdins’ claim, as should $125 (deducted for inadequate description) and $125 (deducted as related to the voluntary administration proposal).
My starting point for the work stream “Termination Application” is $18,240. However, very significant time was spent working on the s 482 application, and while I accept that the circumstances in which Mr Strazdins and his staff had to do that were far from ideal, I am of the view that some of the time charges are excessive and involved duplication of activities. As a result, I will deduct 15% from the amount claimed by Mr Strazdins.
For the work stream “Termination Application” I allow remuneration in the sum of $15,504.
Remuneration for the period 14 August 2019 to 23 August 2019
For this period, I revert to the remuneration schedule found at AJS 15 to L5. Mr Strazdins seeks the sum of $6,151.75 (inc GST) for this period. This includes the sum of $1,461.50 in relation to the remuneration application. For this period, the vast majority of the work was carried out by Mr Scott.
Given the relatively small size of the claim for this period, I do not break my assessment into individual work streams. Having reviewed all the entries going to make up the claim, there appears to be a degree of duplication and double charging, for example in relation to returning the books and records and staff tips to the premises, dealing with the minutes of the creditors’ meeting, and reviewing the remuneration sought. I will discount the amount sought by 20% as a result.
For the period 14 August 2019 to 23 August 2019, I allow the sum of $4921.40 (inc GST).
Remuneration for the period 24 August 2019 to the hearing of the application.
At AJS 16 to L5, Mr Strazdins has estimated that the remuneration that he will seek for the finalisation of the matter in the sum of $5,535.75 (inc GST). $965 of the estimated amount is in respect of work done on the “Statutory” and “Trade On” work streams. The balance is in respect of the remuneration application. It is anticipated that the majority of the work will be carried out by Mr Scott. The amount is not itemized (as it is only an estimate). In line with my approach in relation to the other time periods for which remuneration sought, I will deduct 20%, as I anticipate that there will be a degree of duplication caused by delegation and supervision arrangements. I allow the sum of $4,428.60.
During the hearing of this matter, Mr Evans tendered L7 on behalf of Mr Strazdins, which shows the fees incurred to the date of the hearing, on the remuneration application. The amount incurred is in the sum of $33,460.50. The vast majority of the work was carried out by Mr Strazdins himself. Mr Evans has proposed that the sum of $25,000 (ex GST) or $27,500 (inc GST) should be allowed. This amounts to a discount of slightly more that 25% on the amount sought. Given that I have discounted the other amounts claimed by Mr Strazdins by between 10% and 20%, this seems reasonable, and in line with the approach I have taken.
The total allowed for the period from 24 August 2019 to the finalisation of this matter, including the amounts sought in AJS16 to L5 and L7 is $31,928.60 (inc GST).
Proportionality
Finally, I address the question of proportionality. I am very mindful of the submission made by Mr Adams, that the remuneration sought by Mr Strazdins is in no way proportional to the complexity, assets, importance, or duration of the liquidation in this matter. There is some force to this submission. The liquidation lasted barely three weeks, the assets of the company far outweighed its liabilities, once the related party creditors stood aside. The level of complexity should have been low.
This analysis, however, overlooks two fundamental aspect of this case. The first is Mr Albayrak’s insistence that the company continue to trade. This, no doubt, led Mr Strazdins to incurring significant remuneration.
Mr Adams made the submission that Mr Strazdins “has not shown that any of the VA/DoCA costs, the claimed costs for trading or the costs of responding to the s 482a application or the legal fees and disbursements claimed, was to the benefit of the liquidation.”[93] The first half of this submission fails to take into consideration Mr Albayrak’s insistence that the company continue to trade. It also fails to take into consideration the trading revenue generated during the time that the company was in liquidation. More fundamentally, however, it fails to take into consideration the very significant value of the goodwill of the company, valued at $150,000 in the accounts exhibited to A9, which was preserved by the continued trading.
[93] Submissions 6 April 2020 at [102].
The other aspect that must be taken into account when considering proportionality in this matter is that the way that Mr Albayrak chose to bring the s 482 application, effectively led to Mr Strazdins carrying out the work for both the voluntary administration process and the s 482 application. While it was open to Mr Albayrak to change his mind as to how he wished to proceed, he cannot expect Mr Strazdins to be penalized as a result. If he had advised Mr Strazdins as soon as he had made the decision, shortly after 1 August 2019, that he wished to proceed with the s 482 application, Mr Strazdins could appropriately be criticized for continuing to carry out significant work on the voluntary administration process. As matters stand, there can be no criticism made of Mr Strazdins for carrying out work that Mr Albayrak consented to, after being advised by his own independent, experienced lawyer. The result of this is that Mr Albayrak must pay for the work that Mr Strazdins carried out in pursuit of the voluntary administration process, as well as the work that he carried out for the s 482 application.
In this regard, I note that Mr Albayrak sought to rely on the case of Morgan v Poulter (in his capacity as former liquidator of Twenty-Seventh Android Pty Ltd)[94] (“Twenty-Seventh Android”). In that case, a company was wound up following its failure to comply with a statutory demand. The director of the company said that he was not aware of either the statutory demand or the winding application prior to its being dealt with by the court. About two months after the order was made, the director applied to have the winding up terminated. He had, however, put the liquidator on notice six days after the winding up order was made that he intended to file a s 482 application. In addition, the company’s only asset was a property, and it had no bank account, ABN or tax file number. While a number of loans were secured by mortgages against the property, the company’s solvency was apparent once it became clear that the mortgagees did not intend to enforce their mortgages, and all of the repayments were up to date. The liquidator sought remuneration in respect of four separate periods; the majority of the work in the third period and all of the work in the fourth period related to the liquidator’s claim for remuneration.
[94] [2019] VSC 563.
While I accept that the principles relied on Twenty-Seventh Android are the relevant principles to be applied here, the factual circumstances of Twenty‑Seventh Android are so different to the matter before me that in my view, it must be distinguished. The company in Twenty-Seventh Android did not trade, was not responsible for a liquor licence, had no assets save for one, and its liabilities were easily ascertainable. Further, the director indicated at a very early stage that he wished to pursue a s 482 application. As a result, save for reiterating the general principles to be applied, I do not consider that Twenty-Seventh Android is of particular assistance in this matter.
The matter set out in section 60-12 of the Schedule
I am conscious that I have not specifically and individually addressed the matters raised in s 60-12 of the Schedule. I am of the view, however, that each of those has been addressed in the body of these reasons.
Conclusion
Mr Strazdins is entitled to remuneration in the following amounts:
For the period 24 July 2019 to 14 August 2019:
Statutory $10,240
Trading and Licensing $16,830
Assets and Liabilities $12,227.40
S 482 Application $15,504Subtotal $54,801.40
For the period 15 August 2019 to 23 August 2019:
$4921.40
For the period 24 August 2019 to finalisation:
$31,928.60
Total $91,651.40This amount is inclusive of GST.
In my view, Mr Strazdins is entitled to claim disbursements in the sum of $25,164.20 (inc GST). Having found that it was reasonable for Mr Strazdins to retain counsel for the s 482 application, there is no basis on which a reduction in this amount is warranted.
I note that Mr Evans has sought an order that the company and Mr Albayrak jointly and severally pay Mr Strazdins’ costs of and incidental to the remuneration application, such costs to be agreed or taxed. Mr Adams has asked for these costs to be reserved. In the circumstances, I will reserve this question to allow the parties to consider this judgment, prior to seeking orders.
I make the following orders:
1Pursuant to section 60-10 of the Insolvency Practice Schedule (Corporations) the Court makes a remuneration determination in relation to the company in favour of the former liquidator specifying that the former liquidator is entitled to receive $91,651.40 (inc GST) in remuneration for his work as liquidator of the company,
2The Court declares that in addition to the said fees, the former liquidator is entitled to recover from the company and thereafter pay disbursements in the amount of $25,164.20 (inc GST).
3The $100,000 standing to the credit of the Suitors’ Fund on account of this action, and all interest accrued thereon, be paid to the former liquidator in part satisfaction of the amounts referred to in the two preceding paragraphs.
4That the balance of $116,815.60 less the amount standing to the credit of this action in the Suitors’ Fund be paid, jointly and severally, by the company and Mr Albayrak to the former liquidator.
5The question of costs in relation to this application be reserved, save that it be certified fit for junior counsel.
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