Australian Securities and Investments Commission v Jones
[2023] WASCA 130
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION -v- JONES [2023] WASCA 130
CORAM: BUSS P
MITCHELL JA
BEECH JA
HEARD: 3 & 4 APRIL 2023
DELIVERED : 1 SEPTEMBER 2023
FILE NO/S: CACV 119 of 2021
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Appellant
AND
MARTIN BRUCE JONES as joint and several administrators of GD PORK HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) as trustee for the GD PORK UNIT TRUST
First Respondent
ANDREW MICHAEL SMITH as joint and several administrators of GD PORK HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED) as trustee for the GD PORK UNIT TRUST
Second Respondent
MARTIN BRUCE JONES as joint and several administrators of GD PORK PTY LTD (ADMINISTRATORS APPOINTED)
Third Respondent
ANDREW MICHAEL SMITH as joint and several administrators of GD PORK HOLDINGS PTY LTD (ADMINISTRATORS APPOINTED)
Fourth Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: KENNETH MARTIN J
Citation: MARTIN BRUCE JONES joint and several administrators GD PORK HOLDINGS PTY LTD (ACN 126 978 676) (ADMINISTRATORS APPOINTED) AS TRUSTEE FOR THE GD PORK UNIT TRUST [2021] WASC 428
File Number : COR 24 of 2019
Catchwords:
Companies - Insolvency - Voluntary administration - Requirement for administrator to be independent and impartial - Where administrators had provided pre‑administration advice and assistance to the companies and their director - Where administrators' firm had received a payment in respect of fees for pre‑administration work - Whether pre‑administration work gave rise to conflicts of interest or apprehended bias on part of respondents as administrators - Whether, as a matter of statutory construction or as a matter of discretion, existence of conflict of interest or apprehension of bias would justify review of respondents' remuneration under s 60‑11 of sch 2 of Corporations Act 2001 (Cth), the Insolvency Practice Schedule (Corporations) - Whether primary judge otherwise erred in exercise of discretion whether to review respondents' remuneration
Legislation:
Corporations Act 2001 (Cth), s 435A, s 438A, s 439
Corporations Act 2001 (Cth), sch 2 (Insolvency Practice Schedule (Corporations)), s 60‑5, s 60‑10, s 60‑11, s 60‑12, s 90‑5(1), s 90‑10(1), s 90‑15(1)
Result:
Leave to appeal granted
Appeal dismissed
Category: A
Representation:
Counsel:
| Appellant | : | S J Maiden KC & P A Walker & L D Coci |
| First Respondent | : | P D Crutchfield KC & P R Edgar |
| Second Respondent | : | P D Crutchfield KC & P R Edgar |
| Third Respondent | : | P D Crutchfield KC & P R Edgar |
| Fourth Respondent | : | P D Crutchfield KC & P R Edgar |
Solicitors:
| Appellant | : | Australian Securities & Investments Commission |
| First Respondent | : | Lavan |
| Second Respondent | : | Lavan |
| Third Respondent | : | Lavan |
| Fourth Respondent | : | Lavan |
Case(s) referred to in decision(s):
Accord Pacific Holdings Pty Ltd v Gleeson [2011] NSWSC 1021
Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230
Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1
ASIC v Wily & Hurst [2019] NSWSC 521; (2019) 137 ACSR 1
Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 116 ACSR 566
Australian Securities and Investments Commission v Franklin [2014] FCAFC 85; (2014) 223 FCR 204
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) [2008] WASC 239; (2008) 39 WAR 1
Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384
Boardman v Phipps [1967] 2 AC 46; [1966] 3 WLR 1009
Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612
Bray v Ford [1896] AC 44
Breen v Williams (1996) 186 CLR 71
Chan v Zacharia (1984) 154 CLR 178
Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289
Clay v Clay [2001] HCA 9; [2001] 202 CLR 410
CNY17 v Minister for Immigration and Border Protection [2019] HCA 50; (2019) 268 CLR 76
Commonwealth of Australia v Irving (1996) 65 FCR 291
Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524
Deputy Commissioner of Taxation v Wellnora Pty Ltd [2007] FCA 1234; (2007) 163 FCR 232
Djordjevich v Rohrt [2022] VSCA 84; (2022) 67 VR 161
Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337
El Sayed v El Hawach [2015] NSWCA 26; (2015) 88 NSWLR 214
Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239
Glenfyne International Holding Ltd v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304; (2019) 101 NSWLR 358
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
Habrok (Dalgaranga) Pty Ltd v Gascoyne Resources Ltd [2020] FCA 1395; (2020) 149 ACSR 1
Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Howard v Federal Commissioner of Taxation [2014] HCA 21; (2014) 253 CLR 83
Humich Nominees Pty Ltd v Commissioner of Main Roads [2020] WASCA 175
Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201; (2021) 288 FCR 104
Independent Cement & Lime Pty Ltd v Brick & Block Co Ltd [2010] FCA 352; (2010) 267 ALR 613
Isbester v Knox City Council [2015] HCA 20; (2015) 255 CLR 135
Johnson v Johnson [2000] HCA 48; (2000) 201 CLR 488
Jones joint and several administrators GD Pork Holdings Pty Ltd (administrators appointed) as trustee for the GD Pork Unit Trust [2021] WASC 428
Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387
McGovern v Ku-ring-gai Council [2008] NSWCA 209; (2008) 72 NSWLR 504
Murdoch v Mudgee Dolomite and Lime Pty Ltd [2022] NSWCA 12; (2022) 398 ALR 658
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410
One T Development Pty Ltd v Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120
Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc (1994) 181 CLR 404
Phelan v Middle States Oil Corporation (1955) 220 F (2d) 593
Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165
Premium Real Estate Ltd v Stevens [2009] NZSC 15; [2009] 2 NZLR 384
QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15; (2023) 66 Fam LR 369
Re Anderson Group [2002] NSWSC 764; (2002) 20 ACLC 1607
Re Barokes Pty Ltd (in liq) [2020] VSC 555
Re Chilia Properties Pty Ltd (1997) 154 ALR 179
Re Club Superstores Australia Pty Ltd (1993) 10 ACSR 730
Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233
Re Fogo Brazilia Holdings Pty Ltd [2022] NSWSC 556; (2022) 162 ACSR 380
Re Kal Assay Southern Cross Pty Ltd (in liq) (1992) 9 ACSR 245
Re Monarch Gold Mining Co Ltd; Ex Parte Hughes [2008] WASC 201
Re National Safety Council of Australia [1990] VR 29
Re Palmer; Ex parte Taylor (1988) 18 FCR 271
Re R & G Shelley Pty Ltd (No 2) (1991) 101 ACTR 5
Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406
Re Ten Network Holdings Ltd [2017] FCA 914; (2017) 252 FCR 519
Re VPlus Superstores Pty Ltd (in liq) [2013] NSWSC 662
Settlement Agents Supervisory Board v Property Settlement Services Pty Ltd [2009] WASCA 143
Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17; (2011) 278 ALR 291
Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96
Warman International Ltd v Dwyer (1995) 182 CLR 544
Webb v The Queen (1994) 181 CLR 41
Table of Contents
Introduction and summary
Statutory provisions
Part 5.3A of the Corporations Act
Schedule 2 of the Corporations Act - the IPS
Background facts
Agreed facts
25 July 2018 - 31 October 2018: Ferrier Hodgson's pre-administration work
31 October 2018 - 5 December 2018: work performed as administrators
28 February 2019 - 28 May 2019: work performed by the administrators after ASIC's involvement
Other factual findings by the primary judge
The primary proceedings
The primary decision
Grounds of appeal
Ground 1: conflict and bias in relation to the fee payment - submissions
Appellant's submissions
Respondents' submissions
Grounds 2 and 3: conflict and bias in relation to reporting on the Weston Milling payment and reporting on management conduct - submissions
Appellant's submissions
Respondents' submissions
Ground 5: whether conflict or bias justifies a remuneration review - submissions
Appellant's submissions
Respondents' submissions
Ground 6: whether review would be punitive and/or pointless - submissions
Appellant's submissions
Respondents' submissions
Ground 7
Ground 8: whether ASIC's apportionment methodology would be unviable - submissions
Appellant's submissions
Respondents' submissions
Leave to appeal
Grounds 1 - 4: fiduciaries - the conflict rule
Grounds 1 - 4: administrators and apprehended bias - legal principles
General principles
The authorities
Re National Safety Council of Australia
Advance Housing v Newcastle Classic Developments
Commonwealth of Australia v Irving
Bovis Lend Lease v Wily
ASIC v Franklin
Re Ten Network Holdings
Ground 1: disposition
The respondents' duties in the circumstances of this case
Was there a real, sensible possibility of conflict?
Was there a reasonable apprehension of bias?
Conclusion as to ground 1
Ground 2: disposition
Ground 3: disposition
Ground 4: disposition
Ground 5: disposition
The authorities
The proper construction of s 60‑11
The proper construction of s 90‑15
Conclusion on ground 5
Ground 6: disposition
Ground 8: disposition
Ground 7: re‑exercise of discretion under s 60‑11
Leave to appeal: disposition
Conclusion
JUDGMENT OF THE COURT:
Introduction and summary
The respondents are insolvency practitioners who were, at the relevant times, partners of the firm Ferrier Hodgson. They were appointed as voluntary administrators of GD Pork Pty Ltd (GD Pork) and GD Pork Holdings Pty Ltd (GDPH) (collectively, the Companies) on 31 October 2018. They remained in that office until 28 May 2019, when the creditors resolved to wind up the Companies.
GD Pork conducted a pig farming operation which involved the supply of pork to a single customer. GD Pork experienced financial difficulties following a dispute with the customer which had resulted in a reduction in the amount of pork supplied, and the price at which it was supplied, to the customer. GDPH, as trustee of the GD Pork Trust, owned the land on which GD Pork's operations were conducted.
On 25 July 2018, prior to the voluntary administration, one of the administrators - Mr Martin Jones - and Ferrier Hodgson were engaged to perform work as advisor to the Companies. Among other things, they gave advice and assistance to the Companies in relation to negotiations with the Companies' secured creditors as to a proposed restructure of the Companies, and in relation to negotiations with unsecured creditors as to standstill/debt reduction arrangements. In the context of those discussions, on 18 October 2018, a payment of $163,628.59 was made by GD Pork to an unsecured creditor, Weston Milling, which supplied feed to the pig farming operation. On 19 October 2018, Ferrier Hodgson invoiced GD Pork for services provided in the amount of $100,124.37 (excluding GST). GD Pork paid that invoice prior to the commencement of the administration on 31 October 2018.
On 5 December 2018, a concurrent joint second meeting of the creditors of the Companies resolved to adjourn the meeting to enable time for a proposed sale of the Companies' business to progress. Also on 5 December 2018, the creditors approved the respondents' remuneration of $141,576.50 for GD Pork and $49,446 for GDPH (both excluding GST) for work done between 31 October 2018 and 5 December 2018.
On 21 December 2018, the respondents accepted an offer from Westpork Pty Ltd for the sale of certain of the Companies' assets and GD Pork's business.
On 28 February 2019, ASIC wrote to the respondents expressing a concern that, due to Ferrier Hodgson's pre-administration dealings with the Companies, the respondents may have placed themselves into an actual or perceived conflict of interest and duty by accepting the appointment as administrators. ASIC invited the respondents to consider what, if anything, they might do to remedy or avoid that concern. ASIC's letter posed questions to be answered in the event that the respondents decided not to resign. ASIC requested a response from the respondents by 11 March 2019, subsequently extended to 29 March 2019.
On 13 March 2019, the respondents drew down the remuneration of $141,576.50 for GD Pork which had been approved at the meeting on 5 December 2018.
The sale of the Companies' assets and business to Westpork Pty Ltd completed on 12 April 2019, and the Companies (through the administrators) ceased operating the business from that date.
On 7 May 2019, after considering the respondents' response, which denied any conflict, ASIC indicated to the respondents its view that they should resign as administrators of the Companies. The respondents took the view that it was not in the best interests of the Companies for them to resign at that advanced stage of the administration. It was ultimately agreed between ASIC and the respondents that, at the reconvened second creditors' meeting, the respondents would propose that alternative liquidators be appointed as liquidators of the Companies. The respondents also agreed not to draw on any remuneration approved at the reconvened second creditors' meeting and to make an application to the court in respect of that remuneration.
On 28 May 2019, the reconvened second meeting of creditors resolved to wind up the Companies in accordance with the respondents' recommendation that this was the only viable option. Alternative liquidators were approved. Also, at the reconvened meeting on 28 May 2019, creditors approved the respondents' remuneration for the period 17 November 2018 - 5 May 2019 in the amount of $762,486 for GD Pork and $23,895 for GDPH (both excluding GST). Creditors also approved the respondents' drawing of remuneration in respect of the period 6 - 28 May 2019 of up to $45,000 for GD Pork and $5,000 for GDPH (both excluding GST). Correspondence detailing ASIC's concerns, and the respondents' responses to ASIC's concerns, was included in the notice of meeting.
The respondents applied to the primary court for orders permitting them to draw on remuneration approved by the creditors. ASIC applied for a review of the respondents' remuneration as determined by the creditors.
ASIC's case below was, and on appeal is, that the pre‑administration work by Ferrier Hodgson gave rise to conflicts of interest or apprehended bias on the part of the administrators in carrying out some of their core functions as administrators. ASIC contended that the respondents should never have taken up their appointments as administrators or performed tasks in respect of which the conflicts arose. Consequently, ASIC contended, and contends, that the court should review the remuneration determinations made by the creditors of the Companies and should reduce the quantum of remuneration to be retained by, and paid to, the respondents.
The primary judge found in favour of the respondents, permitting them to draw down the remuneration and dismissing ASIC's application.[1]
[1] Jones joint and several administrators GD Pork Holdings Pty Ltd (administrators appointed) as trustee for the GD Pork Unit Trust [2021] WASC 428 (primary reasons).
ASIC now seeks leave to appeal against this decision. It contends that the primary judge erred in finding that there was no real or sensible possibility of conflict and no apprehended bias (grounds 1 ‑ 4); erred in finding that the existence of a conflict or bias would not, either as a matter of statutory construction or as a matter of discretion in the circumstances of this case, justify a remuneration review (grounds 5 ‑ 7); and erred in finding that the review methodology proposed by ASIC was inappropriate (ground 8).
As will be seen, compared to its position at trial, on appeal ASIC has substantially narrowed the scope of work in respect of which it contends the respondents had a conflict of interest.
On appeal, ASIC contends, in substance, that the respondents had a real, sensible possibility of a conflict of duty and interest, and were subject to a reasonable apprehension of bias, in each of the following respects:
(1)In investigating and reporting on whether the payment of $100,124.37 to Ferrier Hodgson in respect of pre-administration services might be a voidable preference (ground 1).
(2)In investigating and reporting upon voidable transactions, by reason of Ferrier Hodgson's involvement in negotiations which led to the payment of $163,628.59 to Weston Milling (ground 2).
(3)In investigating and reporting on the conduct of the Companies' management, including any insolvent trading claim, by reason of a conflict between the respondents' duty to report on those matters and their personal interest in avoiding criticism of advice which Ferrier Hodgson gave in the pre-administration period (ground 3).
ASIC also contends that the primary judge erred in failing to consider the aspects of ASIC's case referred to at (2) and (3) above, or in failing to give adequate reasons for rejecting those aspects of ASIC's case. Ground 4 is a consequential ground which contends that, in the circumstances referred to in grounds 1 - 3, the respondents accepted and performed their appointments in circumstances where they should not have done so because they were not free of actual or potential conflicts of interest or apprehended bias in carrying out their investigative and reporting functions.
In our view, ground 1 is established. At the time of their appointment as administrators, there was a real, sensible possibility that the respondents' interest in avoiding any disgorgement of the $100,124.37 paid to Ferrier Hodgson might influence them in discharging their duties of investigating and reporting on potential recoveries of voidable transactions. Further, when the respondents were appointed administrators, a fair-minded lay observer might reasonably have thought that, having regard to their personal interest in avoiding disgorgement of the payment to Ferrier Hodgson, they might not bring an impartial mind to investigating and reporting on potential voidable transactions in a winding up of the Companies.
We also accept that ground 2 is established to the extent that it contends that the primary judge erred in failing to address the aspect of ASIC's claim based on the payment of $163,628.59 to Weston Milling. However, in our view, Ferrier Hodgson's advice given in relation to that matter did not give rise to any real, sensible possibility of a conflict of interest or any reasonable apprehension of bias. Therefore, that aspect of ASIC's claim as advanced on appeal is not established.
We do not accept that the primary judge erred in failing to consider the case articulated by ground 3. At trial, ASIC advanced a case that, by undertaking the pre-administration restructuring work, Mr Jones and Ferrier Hodgson were 'substantially involved' in the management of the Companies. ASIC does not challenge the primary judge's rejection of that aspect of ASIC's case. However, ASIC contends that it also advanced a case at trial based on the restructuring work which was independent of the case alleging substantial involvement. We do not accept the latter submission. It was open to the primary judge to proceed on the basis that ASIC's case as to restructuring work was founded on the alleged substantial involvement. His Honour gave adequate reasons.
Thus, ground 4 is established only to the extent that it relates to ground 1 and the payment of $100,124.37 to Ferrier Hodgson.
Ground 5 challenges the primary judge's conclusion that, as a matter of construction of sch 2 of the Corporations Act - the Insolvency Practice Schedule (Corporations) (the IPS) - the existence of a conflict of interest or apprehended bias is not a proper basis to deny or reduce an administrator's remuneration. In our view, as a matter of construction of the IPS, a court does have a discretion to review an external administrator's remuneration in respect of work which the administrator should not have done by reason of conflict of interest or apprehension of bias. Ground 5 is thus established.
Ground 6, which challenges the trial judge's conclusions that any review of remuneration would be 'punitive' and 'pointless', is also established. Essentially, that is because these conclusions were in substance founded on his conclusions the subject of the successful grounds to which we have referred.
Ground 8, which is premised on one of the primary judge's observations constituting a separate reason for exercising the discretion against ASIC, does not arise as the primary judge's observation was not to that effect.
The errors identified above mean that it is necessary for this court to exercise the discretion as to the review of the respondents' remuneration afresh, as invited by ground 7. We have concluded that in all the circumstances this court should exercise its discretion not to review the respondents' remuneration. We consider that to be the appropriate disposition in circumstances where:
(1)The work which relates to the investigation and reporting of unfair preferences represents only a small proportion of the fees charged for the administration of GD Pork (most of which are concerned with the running of the business and sale of the Companies' assets and business).
(2)The respondents' acceptance of the appointment while subject to a real, sensible possibility of conflict of interest and a reasonable apprehension of bias was inadvertent.
(3)There is no suggestion that the respondents were in fact deflected from the due performance of any aspect of their duties as administrators, nor is there any criticism of their analysis that the date of insolvency was the date of appointment of the administrators.
(4)The opinion that the administrators ultimately formed was that, no offer of a deed of company arrangement having been forthcoming, the Companies having been insolvent from the date of administration and the sole director having resigned, liquidation was the only viable option. There is no basis to doubt the correctness of that opinion. Thus, with the benefit of hindsight, having regard to the way in which the administration progressed, it can be seen that the opinions of the respondents as to the future of the Companies were not, in fact, affected in any material way by the prospect that, if the Companies were wound up, the payment of $100,124.37 to Ferrier Hodgson may need to be disgorged.
(5)There were considerable benefits and cost savings to the administration of the Companies in the respondents being appointed administrators, given the information gained by Ferrier Hodgson in providing the pre-administration services. Had the respondents approached the court before they accepted appointment as administrators, these considerations would likely have led the court to direct that the appointment be accepted despite the potential conflict of interest and apprehension of bias.
(6)The Companies' creditors resolved to approve the respondents' remuneration after the respondents had fully disclosed the relevant facts and ASIC's concerns.
(7)The conduct of a review would require remittal of the case and would involve further expense and delay, in a context where the proceedings have already taken a substantial period of time and consumed considerable resources.
Therefore, although some of the grounds of appeal have been established, we would not disturb the orders made by the primary judge disposing of the primary proceedings. While we would grant leave to appeal, the appeal should be dismissed.
We begin by outlining the statutory scheme that provides the framework for analysis in the appeal.
Statutory provisions
Part 5.3A of the Corporations Act
Part 5.3A of the Corporations Act 2001 (Cth) (Corporations Act) is headed 'Administration of a company's affairs with a view to executing a deed of company arrangement' (DOCA). The object of pt 5.3A is said by s 435A of the Corporations Act to be to:
provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
There are three ways in which an administrator may be appointed: by the company;[2] by a liquidator;[3] or by the holder of a charge.[4] A company may appoint an administrator if the board has resolved that, in the opinion of the directors, the company is insolvent or is likely to become insolvent at a future time and that an administrator of the company should be appointed.[5]
[2] Corporations Act, s 436A.
[3] Corporations Act, s 436B.
[4] Corporations Act, s 436C.
[5] Corporations Act, s 436A(1).
An administration ends when and if one of the following, described as the normal outcomes of an administration, occurs: a DOCA is executed by the company and the deed's administrator; the company's creditors resolve that the administration should end; or the company's creditors resolve that the company be wound up.[6] The administration also comes to an end if, among other things:
(a)the court orders that the administration is to end;
(b)the convening period ends without the meeting being convened and without an application for an extension of the convening period;
(c)an application for an extension of the convening period is determined without the grant of an extension; or
(d)the convening period, as extended, ends without the meeting being convened.[7]
[6] Such resolutions being at a meeting convened under s 439A: Corporations Act, s 435C(2).
[7] Corporations Act, s 435C(3).
Upon appointment, the administrator has control of the company's business, affairs and assets.[8] The administrator acts as the company's agent.[9] While a company is under administration, other persons, such as directors, cannot perform or exercise any function or power as an officer.[10] Only the administrator can deal with the company's property.[11] The members of the company are not able to transfer shares, except in some limited circumstances.[12]
[8] Corporations Act, s 437A.
[9] Corporations Act, s 437B.
[10] Corporations Act, s 437C.
[11] Corporations Act, s 437D.
[12] Corporations Act, s 437F.
By s 438A of the Corporations Act, as soon as practicable after the administration of a company begins, the administrator must:
(a)investigate the company's business, property, affairs and financial circumstances; and
(b)form an opinion about:
(i)whether it would be in the interests of the company's creditors for the company to execute a DOCA;
(ii)whether it would be in the creditors' interests for the administration to end; and
(iii)whether it would be in the creditors' interests for the company to be wound up.
The administrator's opinion about these matters will form the basis for the statement to be made by the administrator in his or her notice to creditors, referred to below.
The administrator must convene two meetings. The business of the first meeting is to determine whether to appoint a committee of inspection and, if so, who are to be the members of the committee (s 436E(1)). At the second meeting, the creditors can resolve that the company execute a DOCA specified in the resolution, or that the administration should end, or that the company be wound up (s 439C).
The administrator must convene the second meeting of creditors within the stipulated convening period (s 439A(5)), which is usually 20 business days, unless the convening period is extended under s 439A(6). The meeting must be held no later than five business days after the end of the convening period (s 439A(2)).
In convening a meeting under s 439A, the administrator must send notice to creditors containing the information required by r 75‑225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPR). The notice must include a statement by the administrator setting out the following:
(i)whether, in the administrator's opinion, it would be in the creditors' interests for the company to execute a deed of company arrangement;
(ii)whether, in the administrator's opinion, it would be in the creditors' interests for the administration to end;
(iii)whether, in the administrator's opinion, it would be in the creditors' interests for the company to be wound up;
(iv)the reasons for the opinions referred to in subparagraphs (i) to (iii);
(v)such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii);
(vi)whether there are any transactions that appear to the administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part 5.7B of the Act;
(vii)if a deed of company arrangement is proposed - details of the proposed deed.
Section 438D(1) of the Corporations Act provides that if it appears to the administrator that:
(a)a past or present officer or employee, or a member, of the company may have been guilty of an offence in relation to the company; or
(b)a person who has taken part in the formation, promotion, administration, restructuring, management or winding up of the company:
(i)may have misapplied or retained, or may have become liable or accountable for, money or property (in Australia or elsewhere) of the company; or
(ii)may have been guilty of negligence, default, breach of duty or breach of trust in relation to the company;
the administrator must:
(c)lodge a report about the matter as soon as practicable; and
(d)give ASIC such information, and such access to and facilities for inspecting and taking copies of documents, as ASIC requires.
By s 448C(1), a person must not, except with leave of the court, seek or consent to be appointed as, or act as, administrator of a company if the person falls within one of the paragraphs of the provision. Relevantly, that will be so if the person, or if a body corporate in which the person has a substantial holding, is indebted in an amount exceeding $5,000 to the company, or to a body corporate related to the company; or if the person is, otherwise than in the capacity as administrator, deed administrator or restructuring practitioner, a creditor of the company or a related body corporate in an amount exceeding $5,000: s 448C(1)(a) and (b).
A person who is a director of a company at the time when the company incurs a debt, in circumstances where the company is insolvent at that time or becomes insolvent by incurring that debt, and where there are reasonable grounds for suspecting that the company is insolvent or would so become insolvent, contravenes s 588G(2) if they were aware that there were grounds for so suspecting, or if a reasonable person in a like position in the company's circumstances, would be so aware.
Section 588GA(1) provides a defence, referred to as the 'safe harbour defence', in the following terms:
(1)Subsection 588G(2) does not apply in relation to a person and a debt if:
(a)at a particular time after the person starts to suspect the company may become or be insolvent, the person starts developing one or more courses of action that are reasonably likely to lead to a better outcome for the company; and
(b)the debt is incurred, or the disposition is made, directly or indirectly in connection with any such course of action during the period starting at that time, and ending at the earliest of any of the following times:
(i)if the person fails to take any such course of action within a reasonable period after that time - the end of that reasonable period;
(ii)when the person ceases to take any such course of action;
(iii)when any such course of action ceases to be reasonably likely to lead to a better outcome for the company;
(iv)the appointment of an administrator, or liquidator, of the company.
…
(2)For the purposes of (but without limiting) subsection (1), in working out whether a course of action is reasonably likely to lead to a better outcome for the company, regard may be had to whether the person:
(a)is properly informing himself or herself of the company's financial position; or
(b)is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company's ability to pay all its debts; or
(c)is taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or
(d)is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or
(e)is developing or implementing a plan for restructuring the company to improve its financial position.
Schedule 2 of the Corporations Act - the IPS
Section 5‑20 of the IPS defines who is an external administrator. Such persons include an administrator of the company, an administrator under a DOCA entered into by the company, or a liquidator of the company.
Section 60-5 of the IPS allows an administrator to receive remuneration for work that is 'necessary work properly performed', providing as follows:
60-5 External administrator's remuneration
Remuneration in accordance with remuneration determinations
(1)An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator (see section 60-10).
Remuneration for external administrators if no remuneration determination made
(2)If no remuneration determination is made in relation to necessary work properly performed by the external administrator of a company in relation to the external administration, the administrator is entitled to receive reasonable remuneration for the work. However, that remuneration must not exceed the maximum default amount. (underlining added)
Section 60‑10(1) of the IPS provides, relevantly, that a determination specifying remuneration that an external administrator of a company is entitled to receive for 'necessary work properly performed' by that administrator in relation to the 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.
Section 60‑11 of the IPS provides, relevantly, that the court may review remuneration determinations. Persons who may apply to the court for such a review are:
(a)ASIC;
(b)a person with a financial interest in the external administration of the company;
(c)an officer of the company.
Section 60‑11 further provides:
(3)On application under subsection (1), the Court may, if it considers it appropriate to do so, review the remuneration determination.
Note: See also section 60-12 (matters to which the Court must have regard).
Court must affirm, vary or set aside remuneration determination
(4)After reviewing the remuneration determination, the Court must:
(a)affirm the remuneration determination; or
(b)vary the remuneration determination; or
(c)set aside the remuneration determination and substitute another remuneration determination.
It is clear from the terms of s 60‑11(3) that the court has a discretion as to whether to review a remuneration determination.
Under s 60‑12 of the IPS, in making a remuneration determination or in reviewing a remuneration determination, 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.
Section 90-5(1) empowers the court, on its own initiative, to inquire into the external administration of a company. Section 90-10(1) empowers the court to so inquire on the application of a person mentioned in subsection (2), one of whom is ASIC.
Section 90‑15 of the IPS empowers the court to make such orders as it thinks fit in relation to the administration of a company, including any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
(b)an order that a person cease to be the external administrator of the company;
(c)an order that another registered liquidator be appointed as the external administrator of the company;
(d)an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
(e)an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;
(f)an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.
By s 90‑15(4), the matters that the court may take into account when making orders under s 90-15(1) include, but are not limited to, the following:
(a)whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and
(b)whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d)whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e)the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
By s 90‑20(1), ASIC is among the persons able to apply for an order under s 90‑15(1).
Background facts
Agreed facts
The agreed facts, set out in sch 1 of the primary reasons, may be summarised, relevantly, as follows.
On 25 July 2018, Mr Torben Soerensen, the sole director of each of the Companies, engaged Ferrier Hodgson to do advice work for the Companies.[13] Mr Jones, then a partner of Ferrier Hodgson, had carriage of that engagement.[14]
[13] Schedule 1 [1] - [4].
[14] Schedule 1 [5].
The initial scope of Ferrier Hodgson's work as advisor was to prepare a report detailing a summary of the Companies' financial positions, with a focus on any settlement with their main customer, Derby Industries Pty Ltd, and how that affected the Companies' restructure plan and immediate cashflow.[15]
[15] Schedule 1 [7]; primary reasons [247].
On 7 August 2018, at Mr Soerensen's request, Ferrier Hodgson's scope of work expanded such that Ferrier Hodgson would assist the Companies to:
(a)review and finalise a cashflow model of the Companies' financial positions;
(b)negotiate with the Companies' secured lenders and stakeholders to formulate a potential strategy as to their options;
(c)formulate a restructure plan; and
(d)prepare a report to the secured lenders.[16]
25 July 2018 - 31 October 2018: Ferrier Hodgson's pre-administration work
[16] Schedule 1 [8] - [9]; primary reasons [248] - [249].
On 8 August 2018, Ferrier Hodgson issued a report for the Companies' secured lenders (Bankwest and Export Finance Insurance Corporation (EFIC)) titled 'Operation Review & Restructure Proposal' (8 August report).[17] The report contained a proposal for the secured lenders to agree to a standstill on capital debt reduction, an outline of key objectives which envisaged a proposed restructure including ensuring sufficient cashflow, equity injection, debt deferral, and the consideration of a sale of an Australind property.[18]
[17] Schedule 1 [10].
[18] Schedule 1 [11] - [12].
On 9 August 2018, Mr Jones, Mr Soerensen, and two others met with representatives of Bankwest and EFIC. Mr Jones outlined the 8 August report.[19] On 15 August 2018, Mr Soerensen asked Mr Jones about potential parties for an equity injection.[20]
[19] Schedule 1 [13] - [14].
[20] Schedule 1 [16].
On 27 August 2018, the Companies made a proposal, which Ferrier Hodgson documented, to their major grain supplier, Weston Milling, regarding a standstill on invoices.[21] On 30 August 2018, Mr Jones requested the law firm Lavan to provide a quote to prepare a draft standstill and forbearance deed between the Companies and their secured lenders.[22]
[21] Schedule 1 [17].
[22] Schedule 1 [18].
On 13 September 2018, Ferrier Hodgson sent a draft information memorandum and confidentiality deed to Mr Soerensen.[23] On 19 September 2018, Ferrier Hodgson wrote to Strathaven, a creditor, outlining the financial difficulties facing the Companies, their restructure plans, and outlining a standstill on invoices to Strathaven.[24]
[23] Schedule 1 [20] - [21].
[24] Schedule 1 [23].
On 20 September 2018, Mr Jones invited real estate agents to provide submissions for selling the Companies' Australind property.[25] On 24 September 2018, the Companies commenced a marketing campaign seeking third party investment.[26] On 28 September 2018, Ferrier Hodgson issued a report addressed to the Companies' secured lenders titled 'Monitoring Report - August'.[27]
[25] Schedule 1 [24].
[26] Schedule 1 [25].
[27] Schedule 1 [30].
On about 4 October 2018, Ferrier Hodgson issued a flyer to advertise for sale or equity investment some of the Companies' businesses and assets.[28] The flyer directed interested parties to Mr Soerensen or Ferrier Hodgson for further information.[29]
[28] Schedule 1 [31].
[29] Schedule 1 [32].
On or around 5 October 2018, the Companies made a payment of $120,000 to Weston Milling.[30]
[30] Schedule 1 [33].
By exchange of emails from 5 October 2018 to 8 October 2020, Mr Friedrichs of Weston Milling confirmed to Mr Jones that he had spoken with Mr Soerensen and verbally agreed payment terms for Weston Milling to agree to an extension of time for the Companies to pay down outstanding invoices. Mr Jones noted, in response to Weston Milling's request for a payment of $160,000 by the week ending 8 October 2018, that:
(a)the Companies were not sufficiently capitalised to over-commit to additional payments that would jeopardise the Companies' short-term cashflow and long-term viability;
(b)Mr Jones would speak with Mr Soerensen in relation to the additional payment request; and
(c)Mr Jones would work through the Companies' cash flows that week, with the benefit of September's results, and respond to Mr Friedrich's request once Mr Jones had facts to present.[31]
[31] Schedule 1 [34].
On about 12 October 2018, Mr Soerensen, and Mr Jones and Ms McCann of Ferrier Hodgson, discussed a proposal concerning the making of payments to Weston Animal Nutrition, which is part of the same group of companies as Weston Milling, to reduce the Companies' outstanding account.
On 16 October 2018, Mr Friedrichs emailed Mr Soerensen and Mr Jones and requested that they advise Mr Friedrichs of the Companies' payment plan and property security proposal as soon as possible. On the same day, Mr Soerensen instructed Ms McCann and Mr Jones that the repayment proposal discussed between himself and them was acceptable to him and could be sent to Mr Friedrichs. By 17 October 2018, Mr Jones provided to Mr Friedrichs the Companies' proposed payment plan to reduce payment of their outstanding trade creditor account with Weston Animal Nutrition.[32]
[32] Schedule 1 [38] ‑ [42].
The proposed payment plan involved the Companies paying $160,000 per week from the date of acceptance until 31 December 2018, following which, Mr Jones informed Weston Animal Nutrition, GD Pork would be in a better position to advise on repayment in full of the outstanding balance.[33]
[33] Schedule 1 [43].
On 18 October 2018, GD Pork made a payment of $163,628.59 to Weston Milling.[34]
[34] Schedule 1 [44].
That payment, and Mr Jones' and Ferrier Hodgson's work relating to it, is the subject of ground 2 and part of ground 3 of the appeal.
On 19 October 2018, Ferrier Hodgson invoiced GD Pork for professional fees and disbursements totalling $110,136.81 including GST. By the end of October 2018, GD Pork paid those fees.[35]
[35] Schedule 1 [45] - [46].
Ground 1 asserts that the payment to Ferrier Hodgson of this sum, which the administrators failed to disclose to creditors, gave rise to a conflict of interest and reasonable apprehension of bias on the part of the administrators.
On 25 October 2018, Weston Milling informed Ferrier Hodgson that it rejected the Companies' proposed repayment plan. By report dated 26 October 2018, Ferrier Hodgson provided a September monitoring report for the secured lenders. On 29 October 2018, Mr Jones sent a letter to Mr Soerensen providing an overview of voluntary administration and containing a proposal for Mr Jones and Mr Smith to act as voluntary administrators of the Companies.[36]
[36] Schedule 1 [50] - [52].
As already noted, on 31 October 2018, Mr Soerensen appointed Mr Jones and Mr Smith as joint and several voluntary administrators of the Companies.
31 October 2018 - 5 December 2018: work performed as administrators
As administrators, the respondents assumed control of the Companies' businesses. They conducted an urgent financial analysis.[37]
[37] Schedule 1 [55] - [56].
The respondents issued a new flyer on GD Pork letterhead seeking offers for sale of the Companies' assets.[38]
[38] Schedule 1 [58].
On 12 November 2018, concurrent first meetings of creditors of each of the Companies were held where the creditors confirmed the appointment of the administrators.[39]
[39] Schedule 1 [59] - [60].
On 27 November 2018, the respondents provided their statutory report to creditors pursuant to r 75-225 of the IPR (major report).[40]
[40] Schedule 1 [61].
The major report indicated that, on their appointment, the administrators commenced a sales campaign but at the time of writing the report had not received any offers capable of acceptance. The report indicated that any return to creditors was dependent on the outcome of the sales process. Should no offers be received for the Companies' business, then the Companies would likely be wound up and any returns to creditors would depend on the identification and recovery of any voidable transactions. The report indicated that a DOCA proposal had not been received and ending the administration was not a viable option due to the insolvency of the Companies. On that basis, the administrators recommended that creditors vote for an adjournment of the second meetings to allow further time to progress the ongoing sales process. The administrators reported that preliminary investigations identified that the Companies were unlikely insolvent for any material time before the appointment of the administrators on 31 October 2016 and there were unlikely to be any voidable transactions.[41] The report identified only one potential unfair preference, being a payment of circa $160,000 to one creditor in the week prior to the administrators appointment (a reference to the payment of $163,628.59 to Weston Milling on 18 October 2018).[42]
[41] See, for example, the summary at GAB 117 ‑ 118. The detailed analysis of the Companies' solvency appears at GAB 147 - 158.
[42] GAB 161.
The major report set out the remuneration for which the respondents would seek approval at the second meeting of creditors.[43]
[43] Schedule 1 [62].
On 5 December 2018, the concurrent second meetings of creditors were held to decide the future of the Companies.[44] At those meetings, the creditors unanimously resolved to approve the respondents' remuneration in the sums sought by the respondents. That remuneration included amounts for investigating and reporting about voidable preferences; investigating and reporting about management conduct, including insolvent trading issues; and pursuing the sale of assets and businesses.[45]
[44] Schedule 1 [63].
[45] Schedule 1 [66]; see also Affidavit of Martin Jones sworn 2 June 2020 (Jones 1), 330 - 333.
On 21 December 2018, the respondents accepted an offer from Westpork Pty Ltd for the sale of certain assets and businesses.[46]
28 February 2019 - 28 May 2019: work performed by the administrators after ASIC's involvement
[46] Schedule 1 [68].
On 25 February 2019, an online auction of the equipment remaining at the Australind property was completed.[47]
[47] Schedule 1 [70].
At the hearing of the appeal, submissions were made as to whether ASIC had delayed in raising and acting upon its concerns of a conflict of interest or reasonable apprehension of bias on the part of the administrators. Questions were also raised as to the relevance, if any, of the fact that ASIC did not apply for the removal of the administrators. Consequently, we will outline the course of communications between ASIC and the respondents in some detail.
The respondents were appointed as administrators on 31 October 2018. They lodged their Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) on 2 November 2018.
By letter of 28 February 2019, ASIC first raised its concerns with the respondents.
ASIC's letter of 28 February 2019:
(1)expressed ASIC's concern that the respondents' prior dealings with the Companies may have created an actual or perceived conflict of interest and duty;
(2)expressed concern that some of the statements in the DIRRI were not correct;
(3)stated ASIC's view that due to the respondents' pre‑appointment engagement with the Companies, a fair‑minded observer might reasonably apprehend that the respondents might not be able to independently review transactions involving the Companies that occurred between July and October 2018;
(4)requested that the respondents consider what they might do to remedy or avoid the concern about independence that ASIC had expressed, saying that this may include resigning or preparing a replacement DIRRI;
(5)requested that, in the event that the respondents considered it not appropriate to resign, they state why they considered it appropriate to accept the appointment and they provide copies of documents relating to the pre‑appointment engagement; and
(6)requested a written response from the respondents by 11 March 2019.
By letter of 8 March 2019, Mr Jones sought an extension of time, until 29 March 2019, for the respondents to respond to ASIC's concerns. ASIC agreed to the extension.
On 13 March 2019, the respondents drew down remuneration totalling $141,576.50 excluding GST, which had been approved at the meeting on 5 December 2018 as their remuneration for the administration of GD Pork.[48]
[48] Schedule 1 [74].
On 2 April 2019, Mr Jones wrote to ASIC stating that, in his view, the respondents did not place themselves in a position of actual or perceived conflict of interest by accepting their appointment.[49] The respondents prepared a draft updated DIRRI which Mr Jones forwarded to ASIC, for its comment, by letter of 12 April 2019.[50]
[49] Schedule 1 [75].
[50] GAB 513.
On 12 April 2019, the sale of the Companies' businesses and assets to Westpork Pty Ltd was completed.[51]
[51] Schedule 1 [77].
On 23 April 2019, the respondents' solicitors wrote to ASIC stating, among other things, that (i) the sale of the Companies' assets was completed, (ii) the court had extended the convening period until 4 June 2019 and (iii) it was likely that the Companies would proceed to liquidation at the reconvened second meeting of creditors. The letter also sought ASIC's feedback on the matters raised in Mr Jones' letter of 2 April 2019.[52]
[52] Schedule 1 [78].
By letter of 30 April 2019, ASIC requested that the respondents defer reconvening the second creditors' meeting in light of ASIC's ongoing concerns as to the respondents' pre‑appointment work. ASIC stated that it anticipated being in a position to advise the administrators of its views by 8 May 2019.
On 7 May 2019, ASIC wrote to the respondents' solicitors stating its view that the respondents lacked independence or would be perceived as lacking independence due to their prior dealings. In more detail, ASIC expressed the view that an informed observer might reasonably apprehend that the respondents' prior dealings with the Companies were such that they might not bring an impartial mind in the exercise of their duties in relation to matters including investigating whether there was an unfair preference claim against Weston Milling, investigating whether there was any unfair preference claim that could be made against the respondents for the approximately $100,000 in fees paid to Ferrier Hodgson, and various other matters.[53] The letter stated ASIC's view that the respondents' disclosure was not fulsome and that the respondents should immediately take steps to resign as voluntary administrators in a manner that enables the efficient transition to replacement voluntary administrators, in the best interests of the Companies' creditors. The letter foreshadowed that if the respondents neither resigned nor sought court directions, ASIC was likely to commence proceedings as a matter of urgency seeking orders that the respondents cease to act as administrators of the Companies.[54]
[53] GAB 461 ‑ 462.
[54] GAB 463.
The respondents' solicitors replied by letter of 10 May 2019. The letter:
(1)informed ASIC that the respondents did not consider it to be in the best interests of creditors for the administrators to retire and be replaced;
(2)stated that given the sale of the Companies' businesses and the lack of any DOCA proposal, it was extremely likely that the Companies would be put into liquidation at the second creditors' meeting;
(3)stated that the replacement of the respondents as administrators would necessitate a likely further extension of the convening period, with very little utility; and
(4)proposed that the respondents proceed by convening a second meeting at which it would be proposed that different persons be appointed as liquidators and that thereafter the respondents would do everything practicable to assist in the orderly transition to the new liquidators.[55]
[55] GAB 521 - 523.
By letter of 13 May 2019, ASIC responded, reiterating its concerns. In doing so, ASIC emphasised the need for the steps leading up to the preparation of the report to creditors, and the preparation of the report itself, to be done and seen to be done independently and impartially. The letter requested that the respondents not seek creditor approval of their remuneration at the second creditors' meeting (or any subsequent meeting) and rather apply to the court for a review of their remuneration.[56]
[56] GAB 524 - 526.
By letter of 14 May 2019, the respondents' solicitors provided a draft of the proposed supplementary report to creditors, together with a copy of the administrators' report dated 27 November 2018, pointing out that it was written well before ASIC first wrote to the respondents on 28 February 2019. The letter also pointed out that, as was apparent from the draft supplementary report, the respondents had not undertaken any further investigations into the matters that ASIC appeared to refer to as matters earmarked for further investigation. The respondents proposed that they would not draw any remuneration approved at the reconvened meeting and instead would make an application to the court.
By letter of 16 May 2019, ASIC accepted the proposal made by the respondents, together with the draft supplementary report received on 16 May 2019.[57]
[57] GAB 354.
In their supplementary report dated 17 May 2019, the administrators reported on the completion of the sale of the Companies' business to Westport. The administrators noted that a DOCA proposal had not been received and that control of the Companies could not revert to the director who had resigned. The report indicated that creditors were left with the option of liquidation and recommended that the creditors resolve to place the companies into liquidation. The administrators indicated that, notwithstanding the potential absence of a return to unsecured creditors should the Companies be placed into liquidation, they considered that secured and priority creditors would be provided with the best possible outcome under that scenario.[58] The Administrators set out the history of their dealings with ASIC and proposed the appointment of an alternative liquidator.[59]
[58] See GAB 297.
[59] GAB 299.
On 28 May 2019, the reconvened second creditors' meeting was held. The respondents informed the creditors of their investigations. The creditors approved their remuneration as follows:
(a)In respect of GD Pork, for the period 17 November 2018 - 5 May 2019, $762,486 plus GST.
(b)In respect of GD Pork, for the period 6 May 2019 - 28 May 2019, $45,000 plus GST.
(c)In respect of GDPH, for the period 17 November 2018 - 5 May 2019, $23,895 plus GST.
(d)In respect of GDPH, for the period 6 May 2019 - 28 May 2019, $5,000 plus GST.[60]
[60] Schedule 1 [93].
The remuneration amounts included amounts for reporting about voidable preferences, reporting about management conduct including insolvent trading issues, and pursuing the sale of assets and businesses.[61] At that meeting, the creditors also resolved that the Companies be wound up and appointed liquidators, who were not the respondents.[62]
[61] Schedule 1 [95].
[62] Schedule 1 [94].
From 28 May 2019, therefore, the respondents ceased to be administrators.[63]
Other factual findings by the primary judge
[63] Schedule 1 [96].
The primary judge did not make further detailed factual findings. However, his Honour expressly found that all of Mr Jones' evidence, in his four affidavits, was reliable and convincing.[64]
[64] Primary reasons [257], [342].
The judge quoted aspects of Mr Jones' evidence in cross‑examination, and made findings in the following terms:[65]
[65] Primary reasons [251] - [256].
[251]That agreed position is consistent with Mr Jones' evidence at the hearing given under cross examination. See for instance, the following exchange as between senior counsel for ASIC and Mr Jones (at ts 203):
'… You were part of that negotiation that you've just described?‑‑‑No. I've never described 2 October as being part of a negotiation that we had with Western [sic] Milling. Yes, I was at the meeting, but those negotiations were between Mr Soerensen and Western [sic] Milling ... I had no concept of entering into any negotiations around what would be paid and what needed to be ordered, and when it was capable of being delivered, because I do not have the intellectual background to be able to do it, I was asked along to the meeting, effectively, to give Mr Soerensen some support, but this was, I guess in essence, a legitimate attempt to solve its financial problems with the company, and he wasn't simply looking to gain Mr Friedrichs [of Western [sic] Milling] around what he owed.
Quite. So you, in conjunction with Mr Soerensen, are negotiating with Western [sic] Milling, in an endeavour to keep GD Pork alive? I mean, that's what you were there for, correct?---No. No, I'm not. Mr Soerensen is negotiating with Western [sic] Milling.'
[252]The cross-examination continued (at ts 204):
'For what purpose, other than contributing to that negotiation, could you possibly have been telling Mr Friedrichs, about the effect of a voluntary administration moratorium?---That's factual.
Nobody is accusing you of misleading anybody, Mr Jones, nor of getting any improper leverage, if that's what you're getting at. But the point is, the only reason for you to be having the phone conversation on 3 October and the other conversations that you had with Mr Friedrichs [ie, of Western [sic] Milling] in this context, was the contribute to the negotiation between him and GD Pork in respect of the ongoing trade between these two entities?---And contributing to a negotiation, I'm happy with. To be shoehorned into the negotiator, I don't agree.
I think you and I can agree that you weren't the exclusive negotiator. Can we agree on that common ground?---To contribute, correct.'
[253]Further, the exchange continued (at ts 208):
'Your second affidavit, sorry. There you say you didn't and couldn't negotiate the terms with Western [sic] Milling for three main reasons. You may not have negotiated on particular terms of the arrangement that was put to Western [sic] Milling, but you certainly participated in the negotiation with Western [sic] Milling, as we've now seen, correct?---I think we agree I contributed to them ...'
[254]I refer also to a transcript reference (ts 208 - 209) concerning Mr Jones' frank acceptance of participation in GD Pork's negotiation with Weston Milling as a key grain supplier to the businesses - by reference to the statement in his second affidavit sworn 24 November 2020 (at par 14), in terms that he 'did not and could not' negotiate terms with Weston Milling.
[255]Mr Jones was very fully, closely and competently cross‑examined by senior counsel for ASIC. The theme of much of the cross-examination, as I assessed it (in circumstances where most underlying facts are largely not in dispute) was directed towards advancing ASIC's characterisation contention that Mr Jones, colloquially speaking, had 'crossed the line', or had strayed to sit inside 'the management tent' of both corporations during this prior period of prior engagement of Ferrier Hodgson. But as I assessed Mr Jones' trial evidence, he would not accept he was ever an independent negotiator in his own right in this period or that he held any management role or authority for the corporations.
[256]To the contrary, Mr Jones' position was that his own professional expertise and the insolvency expertise and insights of his firm, Ferrier Hodgson, was, in effect, engaged to assist in the companies' decision making, as regards solvency considerations at the time. But Mr Jones, I found, was firm and consistent in his position that at the end, decisions taken were always ultimately management decisions taken by Mr Soerensen for the [Companies], rather than by Ferrier Hodgson. In other words, it was always firmly rejected by Mr Jones that Ferrier Hodgson had ever, during the pre‑appointment period 'crossed the line' or had moved towards being located anywhere inside a management decision making 'tent' with these corporations. (emphasis added)
The judge found that the respondents did not have 'substantial involvement' in the pre‑administration management of the Companies. The judge considered that Mr Jones and Ferrier Hodgson were professional participants who provided advice about solvency‑related issues concerning the Companies to Mr Soerensen and who liaised with the two major secured creditors.[66] The judge was not persuaded that they ever crossed the line into management decision‑making in their own right or, as his Honour put it in colloquial terms, that they ever went 'inside the management tent', before 31 October 2018.[67] On appeal, ASIC does not challenge this conclusion but relies on the findings of fact in the portion of [256] of the primary reasons italicised at [100], above.
[66] Primary reasons [339] - [345].
[67] Primary reasons [339] - [345].
In participating in dialogue with Weston Milling with a view to securing its forbearance, his Honour found that Ferrier Hodgson never pursued private interests.[68] On appeal, ASIC contends that it had never suggested a pursuit of private interests and that the judge's finding in this regard reveals his Honour's misunderstanding of ASIC's case below.
[68] Primary reasons [348].
The judge identified that at the time the administrators were appointed, there were a number of imminent risks to the Companies' business, including significant liquidity problems, dependence on favourable decisions by the two secured creditors, the need to secure an adequate and regular supply of grain, and animal welfare considerations. His Honour considered that maintaining a secure grain supply from Weston Milling was imperative to ongoing viability.[69]
[69] Primary reasons [298] - [300].
As the respondents' submissions point out, Mr Jones identified in his affidavit a number of matters relevant to the Companies of which he became aware during the pre-administration work, and, accordingly, of which he was aware when the respondents accepted appointment as administrators, including:[70]
(1)The Companies' supply/provision of between 1,000 and 1,400 pigs per week, from a herd of some 46,568, to the Companies' offtake partner.
(2)There were 38 employees at risk of losing their jobs.[71]
(3)A dispute existed in respect of the installation and commissioning of a biogas plant which was critical to the Companies' ability to meet their environmental management obligations.
(4)Falling revenue - the Companies were running at a net loss due to increasing costs and revised margins. The Companies required an immediate injection of funds or a temporary standstill with secured creditors.
(5)The unknown impending impact of criminal charges against the Companies and their director, Mr Soerensen.
(6)The potential for the Companies' deregistration by the Australian Pork Industry Quality Assurance program.
(7)Other environmental management issues including positive obligations imposed by the Environmental Protection Agency to maintain effluent ponds as a condition of licencing and the obligation to remediate if operations stopped.
[70] Affidavit of Martin Jones sworn 24 November 2020 (Jones 2) [8].
[71] GAB 126.
Mr Jones' affidavit also identified a number of stakeholders who could take action that would have an immediate and irreparable effect on the Companies, with the result that ongoing intensive stakeholder management was necessary to ensure the availability of funds to the administrators to continue to trade on, and to lawfully conduct, the operations.[72]
[72] Jones 2 [18] - [19].
The primary proceedings
Having, as noted above, undertaken not to draw upon the remuneration approved by creditors, the respondents applied to the General Division of this court, seeking approval for their drawing on the approved remuneration. That application was made pursuant to s 90-20 of the IPS and, alternatively, under s 447A of the Corporations Act.
ASIC then made applications, pursuant to IPS s 60‑11(1) and s 90‑15(1), seeking that the court review the respondents' remuneration, as determined by the creditors.
It is apparent from ASIC's statement of contentions in the primary proceedings, framed by reference to an amended agreed statement of issues, that, broadly summarised, ASIC asserted that the respondents were not free of actual or potential conflicts of interest or apprehended bias, and thus were not, or could not be seen to be, independent, in carrying out any one or more of the following four functions:[73]
(1)investigating and reporting on voidable transactions, including unfair preferences;
(2)investigating and reporting on the conduct of the Companies' management, including any insolvent trading claim;
(3)pursuing the sale of the Companies' assets and businesses; and
(4)trading the Companies' assets and businesses as a function forming part of, or sufficiently connected with, pursuing a sale of the Companies' assets and businesses.
[73] See BAB 135 - 142.
Given the parties’ submissions on appeal, which advance competing characterisations of ASIC's case below, it is necessary to give detailed attention to the manner in which ASIC formulated the various strands of its case before the primary judge.
In the course of a directions hearing, the then-case manager noted the parties' agreement as to the issues raised by the applications in the following terms:
1.Whether the plaintiffs accepted or performed their appointments as voluntary administrators as one or both of GD Pork Pty Ltd or GD Pork Holdings Pty Ltd (Companies) in circumstances were the plaintiffs should not have done so because:
(a) The plaintiffs were not independent, or alternatively, could not be seen to be independent?
(b) The plaintiffs were not free of actual or potential conflicts of interest or apprehended bias in carrying out one or more of the following functions, namely:
(i)investigating and reporting on voidable transactions including unfair preferences?
(ii)investigating and reporting on the conduct of the Companies' management including any insolvent trading claim?
(iii)pursuing the sale of the Companies' assets and businesses?
(iv)trading the Companies' assets and business as a function forming part of, or being sufficiently connected with, pursuing a sale of the Companies' assets and business?
2.To the extent any part of Issue 1 is answered 'Yes':
(a)Is it appropriate to review the remuneration determinations made by the creditors of each Company on 5 December 2018 and 28 May 2019?
(b)If so, by what amount, if any, ought the remuneration determinations be varied?
(c)Should the court direct that the plaintiffs repay any varied amount of remuneration to one or both of the Companies?
3.Ought the court otherwise direct that the plaintiffs are entitled to draw down remuneration in accordance with the remuneration determinations made by the creditors of each Company on 5 December 2018 and 28 May 2019?
4.Who should pay the costs of the plaintiffs' interlocutory application dated 3 June 2020?
5.Who should pay the costs of the ASIC's interlocutory application dated 28 August 2020?
It is uncontroversial that the issues raised in the third and fourth subpars of par 1(b) are not pursued by ASIC on appeal.
ASIC contends on appeal that the matter at par 1(b)(i) encompasses both the payment to Ferrier Hodgson itself and the payment to Weston Milling, while the issue at par 1(b)(ii) encompasses what is now advanced by ground 3.[74]
[74] Appeal ts 58.
ASIC filed a statement of contentions dated 16 November 2020. Relevantly, it included the following:
Issue 1
...
Issue 1(a) and 1(b)(i)
2.In carrying out the pre-appointment engagement, Mr Jones advised the Companies about, and negotiated with a creditor of the Companies (Weston Milling) in respect of, [a payment] (for about ... $163,000) which the Companies made to Weston Milling in October 2018.
3.Separately, for work performed on the pre‑appointment engagement, GD Pork paid Ferrier Hodgson about $100,124 (excluding GST) in late October 2018.
4.The payments to Weston Milling, and/or to Ferrier Hodgson, were payments which an administrator was required impartially to investigate and form an opinion on, and report about to creditors, as potential voidable preferences. By reason of paras 2 and 3 above, there was a real or sensible possibility the plaintiffs could not, or apparently could not, perform this function impartially.
5.Notwithstanding paras 2 to 4 above, the plaintiffs accepted appointment as voluntary administrators of the Companies, and performed work and claimed remuneration in investigating and reporting to creditors about voidable preferences. As a result, Issue 1(a) and Issue 1(b)(i) should be answered 'yes'.
Issue 1(a) and 1(b)(ii)
6.In carrying out the pre-appointment engagement, Mr Jones and others at Ferrier Hodgson formulated, provided advice to the Companies about, and negotiated with creditors and other stakeholders about, a restructure - including standstill, forbearance and funding proposals (Restructuring Work).
7.By virtue of the Restructuring Work, Mr Jones and Ferrier Hodgson had a substantial involvement with the Companies and their management, prior to the plaintiffs accepting appointment as voluntary administrators.
8.Further, an administrator was required impartially to investigate and form opinions about the Restructuring Work, including in reporting to creditors on potential insolvent trading claims, and possible safe harbour defences. By reason of paras 6 and 7 above, there was a real or sensible possibility the plaintiffs could not, or apparently could not, perform this function impartially.
9.Notwithstanding paras 6 to 8 above, the plaintiffs accepted appointment as administrators, and performed the work and claimed remuneration in investigating and reporting to creditors about the conduct of the Companies' management, including insolvent trading issues. As a result, Issue 1(b)(ii) should be answered 'yes', and Issue 1(a) 'yes' for this further reason.
ASIC submits that its case in the primary court, as articulated by these contentions, advanced two points concerning the restructuring work referred to in pars 6 ‑ 8 of the contentions. The first was the contention that the pre‑engagement work amounted to substantial involvement such that the administrators could not be seen to be independent. The second was the contention that the involvement of the administrators with the management of the Companies prior to their appointment meant that the administrators' reports would concern matters in which they themselves had been involved.[75] As will be seen, we do not accept ASIC's submission that these two points were advanced as distinct claims.
[75] Appeal ts 59 ‑ 60.
ASIC's outline of submissions in the primary proceedings followed the same essential structure as its statement of contentions. ASIC submitted that the pre‑appointment engagement involved the respondents, particularly Mr Jones, in two transactions which they were later required as voluntary administrators to investigate and report to creditors about as potential voidable transactions. The first was the payment of Ferrier Hodgson's fees of about $100,000. The second was the Weston Milling payment of approximately $160,000. It was said that there was a real possibility that each of the payments was a voidable preference. Part of the administrators' duties was to investigate the Companies' affairs and form a view as to which of the three options in s 438A(b) of the Corporations Act would be in creditors' interests. That in turn required the administrators to advise creditors as to whether there were any potentially recoverable voidable transactions.[76] In relation to the Weston Milling payment, it was said that this required the respondents to:[77]
investigate and form opinions about events in which they were directly involved, and which reflected on their own position - including the consequences of any advice that they gave about the Companies' capacity to pay, and the potential for Weston Milling to accuse them of having misled it in to agreeing to the standstill on the assertion (express or implied) that the payment would not be liable to disgorgement.
[76] ASIC's submissions 7 April 2021 [19] - [28].
[77] ASIC's submissions 7 April 2021 [27].
Under the heading 'Investigating and reporting on management ‑ Issues 1(a) and 1(b)(ii)', ASIC's submissions identified conduct and involvement on the part of Mr Jones and Ferrier Hodgson that was said to amount to formulating, advising about, and negotiating with creditors and other stakeholders about a restructure, including standstill, forbearance and funding proposals.[78]
[78] ASIC's submissions 7 April 2021 [31] ‑ [36].
ASIC then made the following submissions:[79]
37.Those facts demonstrate a substantial involvement with the Companies and their management in the critical period immediately prior to the administration. It went well beyond the sort of pre-appointment activities that decided cases recognise as acceptable (eg contingency planning as a 'prospective administrator', or giving general advice about the initiation of some external administration process. The plaintiffs were 'in the tent' with management pursuing a possible restructure.
38.That involvement was enough of itself to give rise to a reasonable apprehension of bias in respect of the plaintiffs' ability impartially to investigate the Companies' affairs and opine about the conduct of management. The ARITA Code fortifies that conclusion. But the prior involvement also had particular force in the context of the plaintiffs' duty to investigate and report to creditors on potential insolvent trading claims, including possible safe harbour defences.
39.Under s 588GA, a defence to insolvent trading may arise where, among other things, a director is obtaining advice from an appropriately qualified entity or is developing or implementing a plan for restructuring the company. Mr Jones was centrally involved in the taking of steps in developing and pursuing such a restructuring plan, particularly those mentioned above. Thus, the plaintiffs were required, in considering insolvent trading and safe harbour defences, to investigate and form a view on the efficacy of their own professional services. The conflict and apprehension of bias are manifest.
40.A further and separate conflict, and apprehension of bias, also arose in respect of the plaintiffs' duty and function in forming a view on the existence and date of insolvency in investigating and reporting on possible insolvent trading claims, having regard to the matters submitted in paragraphs 19 to 28 above. (footnotes omitted)
[79] ASIC's submissions 7 April 2021 [37] ‑ [40].
ASIC filed supplementary submissions, dated 20 July 2021, to deal with some 22 matters raised by the primary judge in the course of a case management conference. These submissions did not depart from the analytical structure of ASIC's statement of contentions and its earlier outline of submissions.
His Honour found that when determining an application by a liquidator for a determination of remuneration, the court must start from the position that the liquidator is entitled to reasonable remuneration. Matters said to amount to, or involve, misconduct will be relevant to that process only to the extent to which they caused the amount claimed to not be reasonable.[276] Barrett J rejected the submission that proceedings under s 536 were the only avenue for pursuit of allegations of unsatisfactory conduct in a setting divorced from the question of remuneration.[277] His Honour was satisfied that alleged misconduct by a liquidator who applies for a determination of remuneration should be addressed in the context of that application, with the court applying the principles outlined above in considering whether the alleged misconduct affects the remuneration sought. His Honour considered that this approach was correct as a matter of principle because a court charged with determining the amount of remuneration to which a fiduciary is entitled could never be deaf to allegations that the fiduciary's responsibility had not been faithfully performed.[278]
[276] Re Anderson Group [22].
[277] Re Anderson Group [23].
[278] Re Anderson Group [24].
Barrett J considered that a two‑step process should be put in place when determining a liquidator's remuneration when there are objections to it on the basis of alleged misconduct. The first step would be the determination by a registrar of the amount of reasonable remuneration, without regard to the merits of the allegations of misconduct made by the objector. The second step would be for a judge to consider the objections, with the objector having to demonstrate conduct warranting a reduction of the remuneration.[279]
[279] Re Anderson Group [27] - [30].
In Re VPlus Superstores Pty Ltd (in liq),[280] in an application for remuneration to be determined under s 473, Black J said as follows:
It is well-established, and it was not contested in the application before me, that a finding of unsatisfactory conduct by the Applicants, in the sense of conduct in breach of duty or involving serious failures or misconduct on their part, may affect their entitlement to remuneration: Re Kal Assay Southern Cross Pty Ltd (1992) 9 ACSR 245; Re Addstone Pty Ltd; Ex parte Macks (1998) 30 ACSR 177; Re Anderson Group above at [15]ff; Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26.
Black J adopted the two‑step procedure referred to in [287] above.
[280] Re VPlus Superstores Pty Ltd (in liq) [2013] NSWSC 662 [12].
In Kennards Hire Pty Ltd v RMGA Pty Ltd,[281] Barrett J considered a claim for a review of a liquidator's remuneration pursuant to s 473(6) of the Corporations Act, and a claim for an inquiry into the liquidator's conduct under s 536 of that Act.
[281] Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387.
His Honour considered that proceedings under s 536 involve three stages, the first being to determine whether an inquiry into the liquidator's conduct is warranted. The purpose of s 536 was described as relating to the regulation, supervision, discipline and correction of liquidators in the interest of the honest and efficient administration of the estates of companies that are subject to winding up.[282]
[282] Kennards Hire v RMGA [37].
Insofar as the plaintiff made complaints of excessive remuneration, those complaints were, Barrett J held, relevant not only to the claim for an order under s 536, but also to the claim for a review of remuneration under s 473(6). However, his Honour emphasised the different considerations that arise in the two kinds of claims. The question on a review under s 473(6) was whether there was a demonstrated need to inquire into the originally determined quantum.[283] His Honour observed that that threshold question would necessarily be approached having in mind the provisions of s 473(10) (which mirror the matters referred to in s 60‑12 of the IPS). His Honour considered that the onus on a person seeking to persuade the court to undertake a review was not a heavy one; it was sufficient if there was a well‑based suspicion indicating a need for further investigation. On such a review, the sole aim is to ensure that a proper quantum is determined - the court does not concern itself with whether the liquidator sought too much or whether the creditors were unreasonably parsimonious in their decision‑making.[284]
[283] Kennards Hire v RMGA [75], citing Paul's Retail v Morgan [79].
[284] Kennards Hire v RMGA [78] - [79].
Ultimately, Barrett J ordered that a review be conducted under s 473(6) and that, having so ordered, the application for an inquiry under s 536 should be dismissed.[285]
[285] Kennards Hire v RMGA [94] - [96].
Thus, in the context of s 473 of the Corporations Act, the cases consistently held that, in determining remuneration under s 473(3)(b) or in reviewing remuneration under s 473(6), the court could consider an allegation of breach of duty or misconduct and could reduce or deny remuneration on account of such conduct.
However, in the context of the IPS, a narrower approach was taken by Hetyey AsJ in Re Barokes Pty Ltd (in liq).[286]
[286] Re Barokes Pty Ltd (in liq) [2020] VSC 555.
After careful consideration of the legislative setting of s 60‑12(a) and a number of cases concerning other legislation, Hetyey AsJ concluded that the phrase 'properly performed' in s 60‑12(a) goes to the manner and quality of the work undertaken by the external administrator, rather than an evaluation of their conduct in performing that work. Hetyey AsJ held that, in context, work that is 'properly performed' is work that is done efficiently, satisfactorily and competently. Consequently, the concept of work properly performed does not invite attention to whether the work amounted to a misconduct or a breach of duty. Whether that was so could appropriately be dealt with in an inquiry under s 90‑10 or a review under s 90‑15, but not under s 60‑12(a).[287]
[287] Re Barokes [65] ‑ [71].
We turn now to the provisions of the IPS.
The proper construction of s 60‑11
By IPS s 60‑5, an external administrator is entitled to receive remuneration 'for necessary work properly performed' in accordance with a remuneration determination. In the absence of a remuneration determination, an administrator is entitled to 'reasonable remuneration' for such work: s 60‑5(2). A remuneration determination may be made by resolution of the creditors; absent which, if there is a committee of inspection, it may be made by the committee; and in the absence of both, it is made by the court: s 60‑10(1). Under s 60-10(1), the subject of the determination is the remuneration that the external administrator is entitled to receive 'for necessary work properly performed'.
By s 60‑11(3), the court has a discretion, where it considers it appropriate to do so, to review a remuneration determination on an application by ASIC, by a person with a financial interest in the external administration of the company, or by an officer of the company.
Section 60‑12 requires a court that is making or reviewing a remuneration determination to have regard to whether the remuneration is reasonable, taking into account any or all of the matters enumerated in pars (a) ‑ (m), the last of which is 'any other relevant matter'. That makes reasonableness - as informed by the enumerated matters - a mandatory relevant consideration in a review under s 60-11. It does not thereby exhaustively identify the considerations to which the court may have regard. Nor, having regard to the statutory scheme, should it be so understood.
The reasonableness of remuneration is one element of the statutory scheme for remuneration of external administrators, as reflected in s 60‑5(2) and s 60‑12. The matters enumerated in (a) ‑ (m) of s 60‑12 are required to be taken into account, to the extent they are relevant, in undertaking the reasonableness inquiry. But reasonableness is not the only element. The external administrator's entitlement to remuneration is confined to remuneration for necessary work properly performed: s 60‑5, s 60‑10(1). In a review of a remuneration determination, or in making a remuneration determination, the court can have regard to whether work the subject of the determination is 'necessary work properly performed'. That element, which as explained arises from s 60-5 and s 60-10(1), is distinct from the element of reasonableness, albeit that whether work is necessary work properly performed is, by s 60‑12(a) and s 60‑12(b), a relevant matter in the reasonableness inquiry.
The phrase 'properly performed' is capable of being understood in two senses. The narrower sense, adopted by Hetyey AsJ in Re Barokes, is that it directs attention to, and only to, the manner in which the work was performed and the quality of the work done. The broader sense also encompasses whether the external administrator was acting properly in doing the work. Under this broader construction, work done in breach of duty, or work that the administrator should not have done, cannot be said to be work that is properly performed and so would not attract remuneration.
To our minds, there is not a great deal that assists in choosing between those constructions of s 60‑11. Both constructions seem to us to sit comfortably with the text of the provision. We do not think that either construction has a distinct textual advantage over the other.
On balance, we prefer the broader construction of s 60‑11. We see insufficient basis in the text, context or purpose of s 60‑11 to depart from the basic precept that conduct by a fiduciary in breach of duty does not attract remuneration. In that regard, we would adopt the reasoning of Barrett J in Re Anderson Group and in Kennards Hire v RMGA outlined in [285] ‑ [286] and [291] above and apply it to the provisions of the IPS.
Unlike Hetyey AsJ, we do not consider that the inclusion of the element that the remuneration be for 'necessary work properly performed' reveals an intention to exclude from consideration, in an application for review of a remuneration determination, whether work was done in breach of duty. Nor are we persuaded that the broader construction of s 60-11 gives rise to any intractable procedural difficulties. The court can adopt a procedure suitable to the circumstances of the case, having regard to the issues raised on the application. In that regard, in the present case, the matters raised by ASIC were explicitly articulated and were fully ventilated in the parties' competing submissions.
For these reasons, in our respectful view, the judge erred in his construction of s 60-11 in finding that it did not encompass a claim that remuneration should be reduced because the work was done in breach of duty. Consequently, we would uphold ground 5 as it relates to IPS s 60‑11.
The proper construction of s 90‑15
We would also uphold ground 5 as it relates to IPS s 90‑15. The power in s 90‑15 is expressed in broad and unconfined terms. It permits the court to make such orders as it thinks fit in relation to the external administration of a company. As Bell P (as his Honour then was) observed in Glenfyne International Holding Ltd v Glenfyne Farms International AU Pty Ltd (in liq),[288] by reference to the well‑known principles stated in Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc,[289] it would be inappropriate to read into s 90‑15 limitations that are not found in express terms of the provision. More recently, Ward P, Leeming and Mitchelmore JJA made the same point.[290] The basic question posed by s 90-15 is whether the proposed order relates to the external administration of the Companies.[291] As the Court of Appeal of Victoria has recently held, the power in s 90‑15 is not, contrary to the respondents' submission,[292] confined to being exercised consequent upon an inquiry ordered under s 90‑5 or s 90‑10.[293]
[288] Glenfyne International Holding Ltd v Glenfyne Farms International AU Pty Ltd (in liq) [2019] NSWCA 304; (2019) 101 NSWLR 358.
[289] Owners of the Ship 'Shin Kobe Maru' v Empire Shipping Company Inc (1994) 181 CLR 404, 421.
[290] One T Development Pty Ltd v Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120 [33].
[291] One T Development v Krejci [33].
[292] Appeal ts 167 - 168.
[293] Djordjevich v Rohrt [2022] VSCA 84; (2022) 67 VR 161 [56].
For overlapping reasons, we do not accept the respondents' submission, and the judge's finding,[294] that in the present case there was no additional role for s 90‑15 beyond what was provided in s 60‑12 given that s 60‑12 deals specifically with remuneration.[295] The provisions of s 60‑11 and s 60‑12 provide an inadequate foundation for reading limits into the broadly expressed powers conferred on the court by s 90‑15. The fact that differently framed powers conferred on the court by different provisions may overlap does not sustain a narrow reading of s 90‑15, bearing in mind the broad terms in which it is expressed.
[294] Primary reasons [142] - [144].
[295] Respondents' submissions [76] - [77]; appeal ts 169.
In our opinion, s 90‑15 empowered the court to reduce the remuneration payable to the respondents on the grounds advanced by ASIC, to the extent that those grounds were found to be established.
If, contrary to our conclusion, the narrower construction of s 60‑11 is adopted, the case for upholding ground 5 as it relates to s 90‑15 would be all the stronger.
The respondents' submission is that:
(1)whether work is done in breach of an administrator's duty is not relevant to an application for review under s 60‑11; and
(2)whether work is done in breach of an administrator's duty is not relevant in the context of an application under s 90‑15. In other words, a claim that remuneration should be reduced, or not paid at all, because work was done in breach of duty is not encompassed by s 90‑15.
This submission is, to say the least, ambitious.
The acceptance of the respondents' construction of s 60‑11 would substantially undermine the foundation for their construction of s 90‑15. On the respondents' construction of s 60‑11, that provision does not encompass a claim to reduce remuneration on the ground that work was done in breach of duty. Yet, on the respondents' argument, it is because s 60‑11 makes specific provision for some aspects of the topic of remuneration - although it does not provide for a claim to reduce remuneration on the ground that work was done in breach of duty - that s 90-15 is to be read as not encompassing such a claim. Thus, on the respondents' construction, neither provision encompasses a claim of this kind.
The logic of the respondents' construction was not spelled out. It appears to be along the following lines. The provision in s 60-12 reveals that a review under s 60-11(3) is confined to the question of reasonableness, so that a claim that remuneration should be reduced on the ground that the work was done in breach of duty is not amenable to or within a review under s 60‑11(3). Notwithstanding that it is so confined, the provision as to remuneration in s 60-11 should be read as somehow 'covering the field' of remuneration, thereby excluding the topic of remuneration from the scope of s 90-15. Having regard to the principles stated in Owners of the Ship 'Shin Kobe Maru' v Empire Shipping, this tenuous logic provides no basis to read a limitation into the broad language of s 90‑15.
Neither s 60-11 itself, nor the IPS as a whole, reveals an intention that s 60-11 covers the field of remuneration.
Conclusion on ground 5
For these reasons, ground 5 succeeds.
Ground 6: disposition
Ground 6 is, in its terms, concerned with challenging the primary judge's findings that any review or reduction of the administrators' remuneration on account of them acting in circumstances of conflict or apprehended bias would be (i) punitive and (ii) pointless. The observations to that effect by his Honour are material insofar, and only insofar, as they informed his Honour's conclusion that, as a matter of discretion, he would decline to make an order under s 60‑11.
The critical passages of the primary judge's reasons, to which the respondents point as setting out the basis for his Honour's exercise of discretion, are as follows:[296]
No review by the Court of the remuneration determinations
[357]Summing up all the above observations, there is no person, including creditors, shareholders or even ASIC that have rendered any level of criticism at the value, quality and standard of the work as it was performed by Ferrier Hodgson, and then, by Messrs Jones and Smith, across essentially a ten (10) month period from 25 July 2018 to 28 May 2019 - which includes Ferrier Hodgson's pre appointment work rendered in respect of the two corporations.
[358]Accordingly, there is no factual basis to sustain ASIC's contention that Messrs Jones and Smith, as the voluntary administrators, should not be entitled to receive all of the remuneration as was approved for them under the remuneration determinations of the creditors of both corporations - including by EFIC and Bankwest. Those secured creditors were commercially sophisticated organisations with commercial and business acumen and insight. They held considerable commercial 'skin in the game'. They were more than capable of rendering robust and reliable business judgments on matters such as the reasonable remuneration of the voluntary administrators.
[359]The aforementioned considerations lead me to my ultimate conclusion that under the circumstances, this court should not, as a matter of discretion, embark upon ASIC's advocated review of the remuneration determinations reached by the creditors of these corporations. Such a review exercise would be completely unnecessary and ultimately pointless.
[360]ASIC's efforts to ventilate a largely academic conflict and ostensible bias concerns against the administrators' level of reasonable remuneration for their work following their appointments via 'the back door, are ultimately not persuasive. I assess them to be in truth, punitive in their object, contrary to accepted principle.
[361]A review by the court pursuant to IPS s 60-12 would necessarily be directed at the 'reasonableness' of the remuneration and conducted by reference to one or more of the 'matters' stipulated as the express criteria in s 60-12 subpars (a) through (m). As seen, ASIC does not seek to engage against any of those subparagraphs - save for s 60-12(m). That sundries provision (namely, 'any other relevant matters') ought not be used as a back door by ASIC to open an attack against the taking up of the voluntary administrator appointments.
[362]In any event, I would find that ASIC's conflict and bias arguments, as expressed, are ultimately not established. There was never a real and sensible possibility of conflict here. No decision taken is remotely suggested as being tainted by apprehended or ostensible bias. None of that possibly goes to detracting from the levels of the reasonable remuneration for the obviously valuable professional services of commercial benefit to the corporations - as approved by the creditors. Nor does IPS s 90-15 'open the door' as an alternative avenue for ASIC to pursue academic grievances by an attack against approved remuneration determinations.
[296] Primary reasons [357] - [366].
Conclusions
[363]Consequently, this court, in exercise of its discretion under IPS s 60-11 and s 60-12, declines to embark upon the conducting of any review of any remuneration determinations by creditors of the two corporations. As these reasons have sought to explain, such a review as regards the remuneration determinations of 5 December 2018 or 28 May 2019 made by the creditors would be unprincipled and ultimately, wholly pointless.
[364]By reference to the various matter considerations found assembled under IPS s 60-12, there is no suggestion that the work conducted by the voluntary administrators over seven (7) months (and the subject of remuneration determinations) was not carried out, or did not confer a valuable benefit on the two corporations concerned. In such circumstances as expressed throughout these reasons, there is absolutely no point conducting a review over whether the remuneration was reasonable. Plainly it was reasonable in the eyes of the creditors and nothing serious has emerged to undermine that assessment.
[365]The base concern of ASIC was that the appointments in October 2018 as voluntary administrators ought not to have been taken up at that time - such concerns being grounded on contentions of conflict of interest, or of ostensible bias which, in the circumstances, are not established.
[366]But even were those expressed conflict and bias arguments to be established, that still would be an insufficient basis to deny these administrators their reasonable remuneration for the valuable benefit they provided to the corporations by their services across the seven (7) month period of administration.
It appears from the above passages that the primary judge's view as to the exercise of the discretion under s 60‑11 was significantly based on his Honour's view that:
(1)ASIC had not established any conflict of interest or apprehended bias; and
(2)in any event, as a matter of construction of the IPS, the existence of a conflict of interest or apprehended bias is not a proper basis to deny or reduce an administrator's remuneration.
While the primary judge said, more than once, that he would not exercise the discretion under s 60‑11,[297] his reasons for so deciding are infused with these two conclusions. Reading the primary reasons as a whole, his Honour's finding that any reduction in remuneration would be punitive seems to us to be, in substance, founded upon these two conclusions, both of which we have, in upholding grounds 1, 4 and 5, found to be erroneous.
[297] Primary reasons [359], [363], [371(2)].
If and insofar as the finding that any review would be punitive is not so based, his Honour did not explain why he considered a review or reduction of remuneration to be punitive. Given ASIC's stated position of reducing remuneration to the extent that work was sufficiently connected with a breach, we are unable to discern any basis for concluding that any review would be punitive. A reduction of remuneration to the extent that work is sufficiently connected with a breach of duty is not punitive in any relevant sense. As Heydon JA explained in Harris v Digital Pulse Pty Ltd,[298] the prophylactic and deterrent effect of equity's strict approach to the conduct of fiduciaries, including as to conflicts of interest and duty, is not punitive in the relevant sense. The same is true, by parity of reasoning, in relation to conduct infected by a reasonable apprehension of bias.
[298] Harris v Digital Pulse Pty Ltd [411] ‑ [419].
In our view, corresponding conclusions can be drawn in relation to the judge's finding that any review would be pointless. First, as we would understand his Honour's reasons, that finding is founded on his Honour's earlier conclusions that (i) there was no conflict of interest or apprehended bias, and (ii) even if there were, such matters are not relevant to a review under s 60‑11. Secondly, to the extent that the finding was not so founded, his Honour did not identify, and we are unable to identify, a basis for so finding.
The passage set out at [316] above contains some reference to ASIC's approach being 'back door'.[299] His Honour used that term as a colourful way of expressing the conclusion that the object of ASIC's application to review the respondents' remuneration was properly characterised as punitive. That is apparent from earlier parts of his Honour's reasons.[300] Thus, the characterisation of ASIC's approach as 'back door' adds nothing of substance to the judge's reasons for his exercise of discretion unfavourably to ASIC.
[299] Primary reasons [360], [361].
[300] Primary reasons [52], [58].
In [357] - [358] of the primary reasons, his Honour referred to the fact that no-one, including ASIC, had criticised the quality of the respondents' work and noted that the Companies' creditors were sophisticated organisations with business acumen. We do not take this to have been a standalone reason for refusing, as a matter of discretion, to conduct a review, divorced from the judge's conclusions referred to in [317] above. The respondents do not suggest that the absence of criticism of the respondents' work could sustain the judge's exercise of discretion if the conclusions in [317] above, and the findings that any review would be punitive and pointless, were found to be erroneous.
His Honour's reasons do not reveal any other independent basis for refusing, as a matter of discretion, the relief sought by ASIC. The respondents do not contend otherwise.
For these reasons, ground 6 is established. Consequently, this court must exercise the discretion under s 60‑11. We will deal with ground 8 before returning to the re‑exercise of discretion under s 60‑11, which is the subject of ground 7.
Ground 8: disposition
Ground 8 is advanced contingently, depending upon how the judge's reasons are to be understood. As already noted, ASIC acknowledges that it is unclear whether the judge's observation[301] that it would be unviable to assess an appropriate reduction in the quantum of the administrators' remuneration by identifying and disallowing amounts for, or connected with, the conflicts or apprehended bias, amounted to a separate reason for the judge exercising his discretion unfavourably to ASIC. Ground 8 is advanced on the premise that his Honour so found.
[301] Primary reasons [367] - [368].
Among his Honour's concluding observations, in primary reasons [367], his Honour rejected ASIC's proposed approach to reduction of remuneration by reference to work that was 'tainted' - in other words, work connected with the conflicts or apprehended bias. Repeating an observation earlier made,[302] his Honour considered that as ASIC's primary grievance was that the administration appointment should not have been taken up from the outset, logically the entire remuneration should be denied.[303]
[302] See, for example, primary reasons [337].
[303] Primary reasons [367].
As we would understand his Honour's reasons as a whole, that line of thinking was an element of the primary judge's conclusion that the approach to reduction of the respondents' remuneration advocated by ASIC stood outside the proper scope of both s 60‑11 and s 90‑15 of the IPS and was otherwise punitive, pointless and unprincipled. We do not understand this point to have been a distinct ground for deciding that it was not appropriate to exercise the discretion favourably to ASIC.
On that basis, ground 8 does not arise.
For completeness, we would add that, to the extent that the observation in [367] of the primary reasons is taken to be a distinct ground for an unfavourable exercise of discretion, in our view such an approach would reveal appellable error in the exercise of discretion. It may be accepted that there was a certain degree of tension in the manner in which ASIC formulated its primary case - namely that (i) by reason of identified conflicts or grounds for apprehended bias, the respondents should not have accepted appointment, but (ii) only the remuneration for such of their work as was sufficiently connected to that conflict or bias should be denied to them. Nevertheless, such an approach cannot be said to be unprincipled. In any event, ASIC also advanced an alternative claim that, by reason of the conflicts or apprehended bias, the respondents should have taken steps to avoid the conflicts, including by the appointment of a special purpose administrator.[304] On that case, the approach to reduction of the respondents' remuneration would naturally be to the effect advocated by ASIC.
[304] ASIC's supplementary submissions 20 July 2021 [2(c)], [36] - [37]; ts 64.
For the reasons in [325] - [327] above, ground 8 is not established.
We turn to the re‑exercise of the court's discretion.
Ground 7: re‑exercise of discretion under s 60‑11
The errors identified above mean that it is necessary for this court to exercise the discretion as to remuneration and approval of the respondents' remuneration afresh and for itself, as invited by ground 7.
In all the circumstances, we would, in the exercise of the court's discretion under s 60-11, decline to review the respondents' remuneration. The most significant considerations in so concluding are as follows.
First, the work which ASIC seeks to impugn relating to the investigation and reporting of unfair preferences represents only a small proportion of the fees charged for the administration of GD Pork (most of which are concerned with the running of the business and sale of the Companies' assets and business).
In the primary proceedings, ASIC advanced a number of bases on which the administrators were said to have had a conflict of interest or a reasonable apprehension of bias, thereby impugning, or arguably impugning, a very substantial proportion of the work done by the respondents. ASIC sought to impugn more than 90% of the work done in relation to GD Pork.[305] The remuneration for that work was more than $880,000. Between the two Companies, ASIC sought to disallow more than $900,000 in remuneration, which was more than 88% of the total remuneration approved for the respondents' work in relation to the Companies.[306]
[305] Primary reasons [34].
[306] BAB 190.
On appeal, ASIC does not challenge the primary judge's rejection of its claim of conflicts of interest or apprehended bias on the part of the respondents in pursuing the sale of the Companies' assets and businesses and in trading the Companies' assets and businesses as part of the pursuit of that sale. Those strands of ASIC's claims of conflict of interest and apprehended bias encompassed a substantial amount of the work done by the respondents.
In this appeal, ASIC has succeeded in establishing a conflict of interest or apprehended bias, to the extent of its success in ground 1. That conflict of interest/apprehension of bias affects the respondents' work in investigating and reporting on potential recoveries in a winding up, including the respondents' work in investigating and reporting on the date of insolvency of the Companies.
At the appeal hearing, in response to an inquiry from the bench, senior counsel for ASIC informed the court that ASIC was not in a position to estimate the value of the work that was, or arguably was, connected to the investigation and reporting on recoveries. ASIC accepted that, as the respondents submitted, it could safely be said that the value of that work was something less than $100,000.[307]
[307] Appeal ts 111.
Thus, the work sufficiently connected with a conflict of interest or apprehension of bias to justify a denial of remuneration is a very substantially confined subset of the work initially impugned by ASIC in the primary proceedings and a small proportion of the fees charged in the administration.
Secondly, the respondents' breaches of duty, in investigating and reporting on potential recoveries in circumstances of conflict of interest or apprehended bias, were inadvertent, not deliberate. Before ASIC raised its concern by letter of 28 February 2019, no creditor or other interested party had raised a concern. Nothing in the available material suggests that the respondents did and charged for any work that is arguably connected to the respondents' breaches after ASIC raised its concern.
Thirdly, there is no suggestion that the respondents were in fact deflected from due performance of any aspect of their duties as administrators. For example, there is no suggestion that the respondents' analysis of the date of insolvency of the Companies was in fact affected by their interest in avoiding a potential preference claim in relation to the $100,000 (approximately) payment to Ferrier Hodgson. Nor is any other criticism made of the respondents' analysis of the date of insolvency.
Fourthly, with the benefit of hindsight having regard to how the administration progressed, it can now be seen that the investigations and reporting required were not impacted in any material way by the prospect that the payment of $100,124.37 to Ferrier Hodgson may need to be disgorged. Significantly, as events transpired, by the time the respondents came to make their recommendations as to the options referred to in s 438A of the Corporations Act, given the absence of a proposal for a DOCA and given the resignation of the sole director, the only option on the table was the liquidation of the Companies. Thus, it can be said without doubt that the respondents' recommendation to the creditors was not affected by their interest in avoiding a possible preference claim. The respondents' ultimate view that liquidation was the only option was plainly correct, and the recoverability of preferences could not affect that conclusion.
Fifthly, there were considerable benefits and cost savings to the administration of the Companies as a result of the information gained by Ferrier Hodgson in providing the pre-administration services. In our view, having regard to the benefits for creditors in having Mr Jones, with his working knowledge of the Companies' business and financial position, undertake the tasks urgently required of the Companies' administrators, the existence of the conflict of interest and apprehension of bias on the part of the respondents to the extent found in our disposition on ground 1 did not of itself preclude the respondents from being appointed as administrators. Had the court been approached before the respondents accepted an appointment as administrators, these considerations would likely have led the court to direct that the appointment be accepted despite the potential conflict of interest and apprehension of bias. The court is likely to have taken the view that the proper response to the conflict of interest and apprehension of bias was the appointment of a special purpose administrator to perform the function of investigation and reporting on potential recoveries in a winding up of the Companies.
Sixthly, the Companies' creditors resolved to approve the respondents' remuneration after the respondents fully disclosed the relevant facts and ASIC's concerns.
Seventhly, if the court were to exercise the discretion favourably to ASIC, the primary proceedings would have to be remitted to the General Division to enable assessment of the amount by which the respondents' remuneration should be reduced. To that end, it would be appropriate to order the respondents to file a further affidavit identifying the work done, and remuneration charged, in relation to investigating and reporting on potential recoveries. Thus, if the discretion is exercised favourably to ASIC, it will be necessary for the proceedings to be remitted and for further steps to be taken. These proceedings have already taken a substantial period of time and consumed considerable resources.
In all of the above circumstances, we would, as a matter of discretion, decline to review the respondents' remuneration.
Insofar as ASIC relies on IPS s 90-15, we would exercise the discretion in like manner.
For completeness, we should note that, in so exercising the discretion, we have not treated any alleged delay on the part of ASIC as a factor materially counting against the exercise of discretion to review the respondents' remuneration. The same is true of the fact that ASIC sought a review of the remuneration and did not apply for removal of the respondents. While ASIC's letter of 28 February 2019 was written about four months after the respondents lodged the DIRRI, as ASIC submits, in the primary proceedings, no point was taken that ASIC had delayed in raising or acting upon its concerns. Further, and it may be inferred consequently, there was no evidence as to when the DIRRI actually came to the attention of any person at ASIC, as distinct from being available to ASIC following lodgement. ASIC did not act unreasonably in not applying for removal of the administrators. By the time it raised its concerns, and received a response, it would have been inefficient and contrary to the interests of the Companies' creditors for the respondents to be replaced as administrators. Indeed, that was a point made by the respondents' solicitors in correspondence in May 2019.
For the reasons already given, we would decline, in the exercise of discretion, to review the respondents' remuneration.
Leave to appeal: disposition
As we would re‑exercise the discretion under s 60‑11 by declining to review the respondents' remuneration, the appeal must be dismissed. The matters referred to in [335] ‑ [343] above also count against the grant of leave to appeal. Nevertheless, we would grant leave to appeal. The primary decision was final in its effect. ASIC has succeeded in several grounds of appeal, thereby demonstrating error on the part of the primary judge in several distinct respects. Among those errors are questions of principle of wider significance in the insolvency and corporate reconstruction sphere, concerning the scope, proper construction and application of s 60‑11 and s 90‑15 of the IPS. In all the circumstances it is in the interests of justice to grant leave to appeal.
Conclusion
For these reasons, we would grant leave to appeal and dismiss the appeal.
We would hear from the parties as to the question of costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AE
Associate to the Honourable Justice Beech
1 SEPTEMBER 2023
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