Albayrak v Truth (SA) Pty Ltd - [2020] SASC 87

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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] SASC 87
Decision Date: 20 May 2020

CaseChat Overview and Summary

The case of Albayrak v Truth (SA) Pty Ltd involved Mr Albayrak, director and shareholder of the company in liquidation, challenging the remuneration sought by Mr Strazdins, the liquidator appointed by the Federal Court of Australia on 24 July 2019. Mr Strazdins sought $101,665.35 in remuneration and disbursements, arguing that the amounts were reasonable and necessary for the work performed during the liquidation process. Mr Albayrak argued that the liquidator's fees were excessive and that certain tasks performed were not necessary or reasonable.

The central legal issue before the court was whether the remuneration sought by Mr Strazdins was reasonable and necessary for the work performed as liquidator of the company. The court had to consider the Insolvency Practice Schedule (Corporations) which outlines the matters that the court must have regard to when making a remuneration determination. Specifically, the court needed to determine if the work was necessary and properly performed, the complexity of the work, and whether the remuneration was in line with market rates.

The court considered the evidence provided by both parties and the expert opinion of Mr Melluish, an experienced liquidator. Mr Melluish provided two methods of assessing the reasonable remuneration, the checklist method and the adjustment method, resulting in amounts of $28,076.50 and $38,033 respectively. After reviewing all the evidence and expert opinion, the court determined that Mr Strazdins was entitled to remuneration in the amount of $91,651.40, inclusive of GST. The court also found that the disbursements claimed by Mr Strazdins were reasonable and awarded him $25,164.20 in disbursements.

The court ordered that the liquidator be paid the determined remuneration and disbursements, with $100,000 from the Suitors’ Fund to be paid in part satisfaction of these amounts. The balance of the remuneration and disbursements was to be paid jointly and severally by the company and Mr Albayrak. The court reserved the question of costs associated with the remuneration application for further consideration by the parties.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

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].

Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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 $54,801.40For the period 15 August 2019 to 23 August 2019:$4921.40For 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.

Ratio Decidendi

Legal Principle Established

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.