Australian Securities and Investments Commission v Australian Foods Company Pty Ltd - [2006] WASC 62

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION -v- AUSTRALIAN FOODS COMPANY PTY LTD & ANOR [2006] WASC 62

CORAM: MASTER SANDERSON

HEARD: 22 FEBRUARY 2006

DELIVERED : 6 APRIL 2006

FILE NO/S: COR 355 of 2004

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND
AUSTRALIAN FOODS COMPANY PTY LTD (ACN 081 404 686)
First Defendant
PAVAN SHIVNANI
Second Defendant

Catchwords:

Receiver - Remuneration - Whether amount claimed should be approved - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 432(1)(b), s 473(2), s 473(3), s 1323

Result:

Remuneration approved

Category: B

Representation:

Counsel:

Plaintiff:        No appearance
First Defendant  :        No appearance
Second Defendant  :        Mr T Galic
Receiver & Manager of First Defendant   :        Mr I R Freeman
Solicitors:
Plaintiff:        No appearance
First Defendant  :        No appearance
Second Defendant  :        Galic & Co
Receiver & Manager of First Defendant   :        Phillips Fox

Case(s) referred to in judgment(s):

Australian Securities and Investments Commission v Australian Foods Co Pty Ltd & Anor [2005] WASC 110
Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96

Case(s) also cited:

Cook v Northoak Holdings Pty Ltd (1997) 15 ACLC 1656
GIS Electrical Pty Ltd v Melsom & Ors [2001] WASC 314
Ide v Ide & Ors (2004) 50 ACSR 324
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410
Re ACN 004 323 184 Pty Ltd v Spark [2002] VSC 353
Re Stockford Ltd (subject to deed of company arrangement); Korda & Anor (as joint and several deed administrators) (2004) 52 ACSR 279
Sigma Chemicals (1986) Pty Ltd as Trustee of the Sigma Chemicals Trust v Brown & Ors [2002] WASC 52

MASTER SANDERSON: This matter has had a lengthy and rather unhappy history. Mr Barry John Honey ("the Receiver") was appointed as the interim receiver and manager of Australian Foods Company Pty Ltd ("the Company") by order of Justice Simmonds on 29 October 2004. The appointment was made on the application by the Australian Securities and Investments Commission ("ASIC") pursuant to s 1323 of the Corporations Act 2001 (Cth), pending the determination of a winding‑up application brought by ASIC against the Company. In the course of the same application, ASIC sought relief against Mr Pavan Shivnani (named as the second defendant to these proceedings). ASIC sought an order preventing the second defendant from misusing or concealing the Company's assets. Accordingly, this action did not arise as part of a private commercial dispute. It was brought by ASIC in order to assist it in exercising its statutory and regulatory and investigative functions.
Paragraph 4(1) of the order made by Justice Simmonds stated:
"The Receiver and Manager shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and exercise of his powers as receiver and manager, such remuneration to be fixed by the Master upon the application of the Receiver and Manager …"
The Receiver applied to the Court for approval of his remuneration on 28 February 2005. I heard that application and concluded I was satisfied that the Receiver had established a prima facie entitlement to the remuneration and expenses claimed: see Australian Securities and Investments Commission v Australian Foods Co Pty Ltd & Anor [2005] WASC 110. After publication of the reasons, I directed the parties to bring in a minute of proposed orders for the next stage of the assessment process.
The Receiver proposed a means by which the second defendant's professional advisers could have access to the Receiver's files in order to prepare specific objections to items in his claim for remuneration. The second defendant did not respond to that proposal: see pars 24 to 33 of the affidavit of Jocelyn Blanche Williams ("Ms Williams") sworn 11 January 2006. The second defendant instituted an appeal against my decision but the appeal was not pursued. As a result of all of this, the question of remuneration has been delayed and no steps have been taken by the second defendant to highlight what he says are the difficulties with the Receiver's claim for remuneration.
The Receiver has now made a proposal in relation to his fees. The amount originally claimed by the Receiver in his interlocutory process filed 28 February 2005 is $325,975.75 (this was subsequently amended). Of that amount $268,594.75 covered the period 29 October 2004 to 4 February 2005 with the remainder being for legal fees incurred during that time. So the remuneration in fact included the remuneration of the Receiver and expenses incurred by him.
The Receiver has now made a proposal to settle his claim for remuneration and expenses. The proposal is set out in pars 41 to 44 of the affidavit of Ms Williams sworn 11 January 2006. In essence, the Receiver proposes that his remuneration and expenses be approved in an amount of $300,000. That global figure does not include the amount of $56,697.63 which the Receiver has paid out of assets of the Company under his control in the course of and for the purposes of the receivership. These payments are set out in annexure "JBW15" to Ms Williams' affidavit. The payments do not include the legal fees which formed part of the original claim. In other words, the global figure of $300,000 is an increase of some $25,000 on the amount originally claimed. But it is for the period from 29 October 2004 up until 22 February 2006.
The Receiver has indicated he is only willing to accept this amount as his remuneration if the claim can be dealt with expeditiously and without the necessity for any further work on his part. If the proposal is not accepted, then the claim for remuneration will be amended. In her affidavit Ms Williams says that she understands that if the Receiver's claim is revised, it will total $438,430.79: see pars 37 to 40. Thus, it is said, if the proposal is accepted and the Receiver is paid $300,000, the Company will have the benefit of a 32 per cent discount on amounts to which the Receiver is entitled.
The Company is presently in liquidation. The liquidator, Glenn Douglas Trinick ("Mr Trinick"), has accepted the Receiver's proposal: see affidavit of Mr Trinick sworn 7 February 2006. (Mr Trinick says he accepts the amount of the claim as reasonable as an expert.) ASIC have also accepted the proposal: see Ms Williams' affidavit of 13 February 2006. Apart from the second defendant a number of other parties, including creditors, object to the Receiver's proposal.
What is now proposed by the second defendant is reflected in a minute of proposed orders for directions tendered by counsel at the hearing. Rather than summarise the minute, I will quote it in full to demonstrate what is anticipated.
"1.It is adjudged and declared that there is sufficient evidence before this honourable court to allow a prima facie assessment and determination to be made of the receiver and managers claim for remuneration.
2.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents all files in the possession of Honey & Honey evidencing all work performed and/or done in relation to this receivership during the period 29 October 2004 to 4 February 2005.
3.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents all files in the possession of McGrath Nicol & Partners evidencing all work performed and/or done in relation to this receivership during the period 29 October 2004 through to 3 December 2004.
4.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents information verifying and/or substantiating the basis of the calculation of the respective rates charged by Honey & Honey and McGrath Nicol & Partners.
5.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents information about the qualification and expertise of each and every person and/or personnel who provided services in relation to this receivership in the period between 29 October 2005 to 4 February 2005.
6.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents:
6.1all original time sheet records and diary notes where relevant, relating to:
(a)the summary of work performed by Honey & Honey for the period 29 October 2004 to 4 February 2005;
(b)the summary of McGrath Nicol & Partners time costs for the period 29 October 2004 through to 3 December 2004; and
(c)the summary of work performed by KPMG Forensic;
6.2all documents (excluding communications or documents that are of their nature privileged from production) upon which the said claims are based.
7.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents copies of any costs' retainer agreement or terms of engagement relating to costs made between Barry John Honey and McGrath Nicol & Partners concerning the receivership of Australia Foods Company Pty Ltd.
8.The receiver and manager do forthwith make available for inspection to the Second Defendant, his servants and/or agents:
8.1copies of any costs' retainer agreement or terms of engagement relating to costs made between Barry John Honey and Messrs Phillips Fox concerning the receivership of Australia Foods Company Ltd;
8.2copies of all time sheet records on which the fees claimed by Phillips Fox are based; and
8.3all documents (excluding communications or documents that are of their nature privileged from production) upon which the said claims are based.
9.Within 28 days thereafter, the Second Defendant do notify the receiver and manager or any objections to the remuneration claimed.
10.The Second Defendant do have leave to cross‑examine any of the receiver and manager's witnesses in the matter, namely Jocelyn Blanche Williams and Glenn Douglas Trinick, as well as the receiver and manager himself.
11.The matter be adjourned for further directions to a date to be fixed.
12.There be liberty to apply generally."
A reading of my earlier reasons indicates that the second defendant has engaged Mr Peter Reymond Quigley ("Mr Quigley") to review the Receiver's claim for remuneration. Mr Quigley is a registered official liquidator and has considerable experience in the field of corporate insolvency. Counsel indicated that once the documents were produced in line with the proposed orders, Mr Quigley would undertake a review of the records and that would lead to the objections to remuneration referred to in par 9 of the minute.
It is worth noting that in these proposed orders there appears to be a hiatus. It would hardly seem sufficient for the second defendant simply to give notice to the Receiver of objections taken to particular parts of the claim for remuneration. Unless those objections were conceded, it would be necessary for affidavit evidence - presumably from Mr Quigley - to be filed to support the second defendant's position. The Receiver would then have to be given the opportunity to respond by affidavit. Cross‑examination of the Receiver and persons on his staff who have undertaken the work could then be anticipated along with cross‑examination of Mr Quigley. All of this will take time, involve considerable cost and render it unlikely that the question of the Receiver's remuneration would be resolved before the end of this calendar year. That is a factor which must be taken into account.
Counsel for the Receiver and counsel for the second defendant each put forward submissions as to why their client's proposal ought be accepted and the other party's proposal rejected. Insofar as the Receiver was concerned, it was submitted that it was very much in the interests of the Company and its creditors to accept this discounted proposal now rather than have a lengthy process of assessing the Receiver's fees which would undoubtedly involve a reduced return to creditors. So far as the second defendant was concerned, it was submitted that his proposal allowed an experienced auditor to check the remuneration claimed by the Receiver. It was submitted that even on the work Mr Quigley had undertaken to date, there was a real question as to whether the amount claimed by the Receiver was reasonable and there was, accordingly, a real prospect that the amount of remuneration allowed would be less than the amount of the settlement proposal. (As to Mr Quigley's concerns about the remuneration claimed by the Receiver, see generally pars 19 and 20 of my earlier decision.)
On behalf of the Receiver it was submitted that the second defendant's proposal ought be rejected for three main reasons. First, it was said that the second defendant does not have any interest in the Company's assets which gives him standing to oppose the Receiver's proposal. As the Company is in liquidation, he is no longer responsible for the management of the Company and is no longer entitled to represent the Company's interests. Furthermore, as the liquidator had raised no objection to the proposal and as he was the person most concerned with the outcome of the application, the second defendant's concerns were of no consequence and ought not stand in the way of accepting this proposal.
In response, counsel for the second defendant pointed out that he is both a shareholder and a creditor of the Company. Counsel pointed out that as a member and creditor of the Company, the second defendant would be entitled under s 432(1)(b) of the Corporations Act to complain to the Court about any act or omission of a controller of the Company in connection with the performance or exercise of any of the controller's functions or powers. It was pointed out that the second defendant was acting in the interests of the Company and, in the absence of any statutory prohibition, he should be entitled to make submissions opposing the Receiver's remuneration.
In this case the Receiver's entitlement to remuneration is derived from the orders of Justice Simmonds to which I have referred above. Unsurprisingly, that order makes no reference to the procedure by which the remuneration is to be determined. Presumably the procedure followed in assessing remuneration under s 473(2) or (3) is to be followed. In my earlier reasons I made that assumption and relied upon the Full Court decision in Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96. Section 473 says nothing about who may challenge a receiver's remuneration; it was not in issue in the Venetian Nominees case (supra). I accept that there may be grounds upon which a person in the position of the Receiver could object to a party appearing at a hearing and contesting the Receiver's entitlement to remuneration. But those arguments should await another day. There was no objection taken to the second defendant's appearing in the proceedings at the outset and objecting to the Receiver's claim. In my view, it is too late for that point now to be taken. I am satisfied that the second defendant should be heard and his submissions considered.
The second objection taken by the Receiver related to delay. Counsel made reference to the failure of the second defendant's solicitors to respond to the Receiver's solicitors' proposals for orders consequent upon my earlier decision. This, it is said, has led to the receivership dragging on and further costs being incurred and that effectively removes the second defendant's right to now insist upon the regime that he proposes. This submission is not without merit. It is difficult to see why, even when an appeal was contemplated, the solicitors for the second defendant did not at least discuss the terms of the orders to be made. But the Receiver could also have returned to the Court and sought orders taking the matter forward. The reasons were delivered on 2 June 2005. No significant steps were taken by the Receiver's solicitors until January 2006. In the circumstances, I am not satisfied that any delay on the part of the second defendant is sufficient to now refuse him the right to argue that the assessment of remuneration ought proceed in a particular way.
Finally, on behalf of the Receiver, it was submitted that the Company is now hopelessly insolvent and the insolvency arose while it was under the second defendant's control. Further, ASIC took steps against the second defendant personally indicating that it had doubts about the propriety of his conduct. As I understand the position, it was said that the mere fact of action being taken against the second defendant was sufficient reason to ignore his proposals. With respect, it is not open to me on the papers available to make any adverse findings about the second defendant's conduct. I would not presume to do so. I need say nothing more - such allegations are not sufficient to warrant ignoring what the second defendant has to say.
On behalf of the second defendant, it was said that the evidence filed in support of the Receiver's application for remuneration was inadequate. Counsel submitted that O 37 r 7 had not been complied with and that there was no admissible evidence before the Court of the itemisation required to be verified by affidavit. This argument was not raised in the earlier proceedings. Leaving that point to one side, I am satisfied that the affidavit material which has been filed is, in all respects, satisfactory. It is clear that the Receiver himself did not undertake all the work done in the receivership. The affidavits set out what work was done, the time taken and the cost involved. It identifies those who did the work. In all respects, the evidence is admissible and satisfactory.
It was further submitted that there was no direct evidence that the Receiver would presently be entitled to fees of $438,430.79. While that is correct, the figure was not put forward on the basis that it was the precise amount of the claim. The amount was put forward as an indication of what the Receiver's fees are at present and how prolongation of this application would affect the financial position of the Company. For the purposes of this decision, I have taken the amount specified as nothing more than an indication. But it stands to reason that if this matter proceeds in the way proposed by the second defendant's counsel, further costs will be incurred and the amount available to creditors will be further eroded.
It was further submitted that the evidence of Mr Trinick should be ignored. This submission had about it two elements. First, it was said that Mr Trinick had given undertakings to the Court in other proceedings that he would not do any act matter or thing as liquidator of the Company pending the determination of an application in other proceedings for an order terminating the winding‑up of the Company. In my view, the fact that Mr Trinick offers a view in these proceedings as to the reasonableness or otherwise of the Receiver's claim for remuneration is not a step in the winding‑up and is not in any way a breach of undertakings he has given. In my view, Mr Trinick is in an ideal position to offer a view and his view is one matter, among others, which should be considered in making a determination.
Second, it was said, that Mr Trinick had a conflict of interest in offering a view as to the reasonableness or otherwise of the Receiver's remuneration. I cannot see that any such conflict arises. The Receiver and Mr Trinick are not related in any business sense or indeed in any other way. The Receiver's role is now finished and Mr Trinick's role, due to the undertakings he has given to the Court, has not yet started. I can see no basis at all for a suggestion that Mr Trinick has a conflict of interest.

At this point it is appropriate to refer again to the procedure for assessing remuneration of a liquidator, provisional liquidator or, as in this case, receiver, as set out in the Venetian Nominees decision (supra). As my earlier decision makes clear, there is a two stage process. The second stage of the process was described by the Full Court in these terms (pages 103 ‑ 104):
"If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O 45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations …
Notice should be given of the points on which the provisional liquidator will be cross‑examined (if cross examination is allowed). The notice of objection should be supported by affidavit. Cross‑examination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry V‑C in Computer Machinery Co Ltd v Drescher (at 1386), namely:
'It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs.' " (my emphasis)
What is proposed by the second defendant in this case - that is, that copies of all the documents be provided to Mr Quigley for his opinion - is not in keeping with what was said to be the appropriate procedure by the Full Court in Venetian Nominees (supra). It must be acknowledged that the Court did say in that case they were not setting out a way of proceeding which was to be applied in every case: see page 103. But here what is proposed by the second defendant is not that the material presently provided by the Receiver should be assessed by another accountant. Rather, it is the underlying source documents that are to be assessed. That, in my view, adds a layer of intensity and complexity to the whole process. It is akin to the Receiver providing discovery so as to allow the objector to trawl through documents looking for the proverbial smoking gun. It is very difficult to see anything resulting from such an exercise beyond a minute examination of the Receiver's conduct leading inevitably to a prolonged, expensive and detailed examination of the Receiver's claim. That, in my view, is something to be avoided.
In the end, I am satisfied that the Receiver's proposal should be accepted and that his remuneration should be approved in an amount of $300,000. I have reached that conclusion for a number of reasons. First, as I indicated in my earlier decision, I am satisfied prima facie the work was done and that the costs claimed by the Receiver were reasonably incurred. No evidence has been adduced to cause me to alter that view. Second, it is apparent that if the process which the second defendant anticipates were to proceed, considerable cost and expense would necessarily be incurred by the Receiver. That would, in turn, reduce the amount of money available to the creditors. If at all possible, that step should be avoided. The Receiver's proposal anticipates a discount on the original claim for remuneration and does not make any further claims for additional work undertaken since the application was made. Thirdly, the present liquidator of the Company, who is an officer of the Court and an individual well‑placed to assess the reasonableness or otherwise of the remuneration, is satisfied that the amount claimed is reasonable. Although I would not see this as a strong factor in favour of approving the remuneration, it is nonetheless a matter which must be taken into account and favours approval of the Receiver's proposal. Finally, I am satisfied that this matter has gone on long enough. I can see no advantage to anyone in prolonging what will become an increasingly agonising position. I accept that not all of the fault for the delay can be sheeted home to the second defendant or his solicitors. But the fact is, when given the opportunity to agree a minute of proposed orders which would have allowed for detailed consideration of the Receiver's claim, they took no steps. Put bluntly, the second defendant had his chance and now this matter ought come to an end.
As an addendum, I would highlight again the necessarily broad‑brush approach taken in reaching this conclusion. The Receiver is claiming a not insignificant amount for his fees. Attempting to analyse the reasonableness or otherwise of those fees in circumstances such as this is a very difficult task. In my earlier decision I highlighted one aspect of the Receiver's claim which was addressed by Mr Quigley and I indicated that it raised an issue which might at some stage have to be addressed. It has not been addressed because of the way the matter has proceeded. I have looked carefully at the material filed by the Receiver and I am satisfied that what is claimed is reasonable. But that assessment is made against necessarily limited background facts and with only a limited understanding of what duties the Receiver undertook. That surely leads to a question of whether the methodology outlined in the Venetian Nominees case (supra) is, in all the circumstances, the best way to assess remuneration.
I will hear the parties as to the precise form of orders and as to costs.