Australian Securities and Investments Commission v Marco (No 15)
[2024] FCA 347
•10 April 2024
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Marco (No 15) [2024] FCA 347
File number: WAD 481 of 2018 Judgment of: FEUTRILL J Date of judgment: 10 April 2024 Catchwords: CORPORATIONS – former administrators and liquidators’ application for determination of remuneration and payment of costs and expenses under s 60-10(1)(c) and s 90-15 of Insolvency Practice Schedule (Corporations) being Sch 2 to the Corporations Act 2001 (Cth) – current liquidators object to claimed remuneration and costs and expenses – where director appointed administrators and proposed deed of company arrangement during pending ASIC proceedings seeking winding up of company for involvement in an unregistered managed investment scheme – where at all times company assets and proposed deed fund assets subject to asset preservation orders and in control of Court appointed interim receivers – where company had no assets and no business in its own right – where investors in scheme contingent creditors of company – whether in the circumstances of the administration all DOCA related work and expenses were necessary and reasonable – consideration of applicable principles
PRACTICE AND PROCEURE – application to re-open perfected orders – where orders included declaration of right – where significant delay and no appeal or application for leave to appeal – where judge hearing application not the pronouncing judge – whether orders final or interlocutory – whether orders founded on misapprehension of law – whether discretionary factors favour re-opening – consideration of applicable principles
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) Pt 3; Div 1; s 13(1)
Bankruptcy Act 1966 (Cth) Pt X
Corporations Act 2001 (Cth) ss 9, 435A, 435B, 436A, 436B, 436C, 436E, 438A, 438A(b), 438B, 438C, 438D, 438D, 439A, 439A(1)-(8), 439C, 439C(c), 440(1)(a), 440D(1), 440D(1)(a), 443A, 443D, 443E, 443F, 444A, 444A(4), 444B, 444C, 445D(1)(g), 446A, 447A, 461(1)(k), 464, 601EA, 601EB, 601ED(1)(a), 601ED(5), 601EE, 601EE(1), 601EE(2), 601FA, 601FB(1)-(4), 601FC(1), 601FC(1)(a)-(e), 601FC(1)(i)-(k), 601FC(2)-(3), 601FD, 601FE, 601FH, 601GA, 601GB, 601HA, 760, 764A(1)(b), 764A(1)(ba), 911A, 911B, 1581; Ch 5, Ch 5C, Ch 7; Ptt 2D.1, 5.3A, 5C.9, 7.6, 7.7, 7.7A, 7.8, 7.9, 7.9A, 7.10; Divs 3, 6, 7, 8, 9, 10; Sch 2, ss 60-5, 60-5(1), 60-5(2), 6-15, 60-10, 60-10(1)(c), 60-12, 60-12(a), 60-12(b), 60-12(c)-(j), 60-15, 90-15, 90-20
Federal Court of Australia Act 1976 (Cth) ss 24(1A), 37M
Corporations Regulations 2001 (Cth) reg 10.25.01; Sch 13; Ch 5, Ch 7
Federal Court (Corporations Rules) 2000 Cth) r 9.2
Federal Court Rules 2011 (Cth) rr 39.04, 39.05, 39.05(c)
Insolvency Practice Rules (Corporations) 2016 (Cth) rr 75-140, 75-225
Legal Profession Act 2007 (Qld) ss 323, 323(3)(a), 323(3)(c)(ii), 327(1)
Trustees Act 1962 (WA) s 92
Cases cited: 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377
Adsett v Berlouis [1992] FCA 549; (1992) 37 FCR 201
Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504
Australian Securities and Investments Commission v Letten (No 20) [2012] FCA 1283; (2012) 92 ACSR 630
Australian Securities and Investments Commission v Marco [2019] FCA 466; (2019) 136 ACSR 116
Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719
Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781
Australian Securities and Investments Commission v Marco (No 9) [2021] FCA 1306
Australian Securities and Investments Commission v Marco (No 13) [2023] FCA 83; (2023) 164 ACSR 638
Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561
Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300
Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939
Baxter Global Investments Pty Ltd (ACN 159 246 670) v Marco [2020] NSWSC 1293
Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44
Burrell v R [2008] HCA 34; (2008) 238 CLR 218
Caron v Jahani (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537
Carr v Finance Corporation of Australia (No 1) [1981] HCA 20; (1981) 147 CLR 246
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (Amerind) [2019] HCA 20; (2019) 268 CLR 524
Commonwealth of Australia v Albany Port Authority [2006] WASCA 185
Conlan as liquidator of Rowena Nominees Pty Ltd (in liquidation) v Adams [2008] WASCA 61; (2008) 65 ACSR 521
De L v Director-General, Department of Community Services (NSW) [1997] HCA 14; (1997) 190 CLR 207
Deloitte Touche Tohmatsu (A Firm) v Sadie Ville Pty Ltd (As Trustee for Sadie Ville Superannuation Fund) [2020] FCAFC 23; (2020) 144 ACSR 1
Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699
DJL v Central Authority [2000] HCA 17; (2000) 201 CLR 226
Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317
Eastman v R [2008] FCAFC 62; (2008) 166 FCR 579
Eco Heat (Vic) Pty Ltd v Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) [2018] VSC 156
Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540
Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423
Higgins v JSS Logistics Pty Ltd (in liq) [2022] FCA 1320
Ho v Grigor [2006] FCAFC 72; (2006) 151 FCR 236
Hutchinson v Nominal Defendant [1972] 1 NSWLR 443
In re Harrison’s Share under a Settlement [1955] Ch 260
Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22
Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 9) [2020] FCA 925
Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304
Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653
Lane v Deputy Commissioner of Taxation [2017] FCA 953; (2017) 253 FCR 46
Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478
Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509
Licul v Corney [1976] HCA 6; (1976) 180 CLR 213
Luo v Zhai (No 6) [2016] FCA 805
Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1
Markopoulus v Marco [2020] WASC 79
Mentha, in the matter of Griffin Coal Mining Co Pty Ltd (administrators appointed) [2010] FCA 1469; (2010) 82 ACSR 142
Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 265 CLR 480
Mirror Group Newspapers plc v Maxwell (No 2) [1998] BCC 324
Monash Health v Singh [2023] FCAFC 166
New South Wales Bar Association v Smith (unreported, NSWCA, 4 July 1991)
Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 2) [2012] FCA 312
Pantzer v Wenkart [2007] FCAFC 27
Pittalis v Sherefettin [1986] QB 868
Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780; (2020) 147 ACSR 1
Re Dion Investments Pty Ltd [2014] NSWCA 367: (2014) 87 NSWLR 753
Re Fearndale Holdings Pty Ltd (in liq) (receivers and managers appointed) [2020] NSWSC 901
Re Huxtable, in the matter of Timeshare Resort Club Ltd (in liq) [2010] FCA 673; (2010) 187 FCR 13
Re Kelly, Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111
Re Korda; in the matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424
Re Mackie Group Pty Ltd (in liq) [2017] VSC 477; (2017) 122 ACSR 537
Re North Food Catering Pty Ltd [2014] NSWSC 77
Re R & G Shelley Pty Ltd (in liq) [No 2] (1991) 103 FLR 220
Re Unlockd Ltd (administrators appointed) [2018] VSC 345
Sallway, in the matter of Mosgreen Pty Ltd (in liq) (Remuneration of Liquidators) [2019] FCA 1771; (2019) 140 ACSR 331
Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459
Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282
Shirlaw v Taylor (1991) 31 FCR 222
Smith v New South Wales Bar Association (1992) 176 CLR 256
Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924
Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545
TiVo, Inc v Vivo International Corporation Pty Ltd [2014] FCA 789; (2014) 9 BFRA 583
Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96
Warramunda Village Inc v Pryde [2002] FCA 250; (2002) 116 FCR 58
Wenkart v Pantzer (No 3) [2013] FCAFC 162
Wentworth v Woollahra Municipal Council (No 2) [1982] HCA 41; (1982) 149 CLR 672
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 266 Date of hearing: 24 - 25 July 2023 Counsel for the Applicant Administrators: Mr PR Edgar Solicitor for the Applicant Administrators: Thynne + Macartney Counsel for the Liquidators: Mr PA Walker Solicitor for the Liquidators: Ashurst Australia ORDERS
WAD 481 of 2018 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: CHRIS MARCO
First Defendant
AMS HOLDINGS (WA) PTY LTD (ACN 164 700 485)
Second Defendant
AMS HOLDINGS (WA) PTY LTD (ACN 164 700 485) AS TRUSTEE FOR AMS HOLDINGS TRUST (and others named in the Schedule)
Third Defendant
ORDER MADE BY:
FEUTRILL J
DATE OF ORDER:
10 APRIL 2024
THE COURT ORDERS THAT:
1.The oral interlocutory application of Robert Michael Kirman and Robert Conry Brauer, as receivers and liquidators, to re-open paragraph 1 of the orders of the Court made on 26 October 2021 be refused.
2.The remuneration of Cameron Shaw, Richard Albarran and Marcus Watters, as former joint and several administrators and liquidators of the second defendant for work in the following categories described in paragraph 123 of the affidavit of Camerson Shaw sworn 16 March 2021 be determined in the total sum of $100,192.26 (incl GST):
(a)ASIC lodgements: $7,775.93.
(b)ASIC court proceedings: $34,918.98.
(c)investigating voidable transactions: $19,553.65.
(d)dealing with receivers and ASIC: $37,943.78.
3.It be declared that Cameron Shaw, Richard Albarran and Marcus Watters, as former joint and several administrators and liquidators of the second defendant are entitled to payment for disbursements and costs in the sum of $84,014.37 (incl GST) for all items of disbursements and costs claimed except legal costs (including counsel’s fees).
4.Except as determined and declared in paragraphs 2 and 3 of these orders, paragraphs 2 and 3 of the application of Cameron Shaw, Richard Albarran and Marcus Watters, as former joint and several administrators and liquidators of the second defendant filed 11 May 2021, as amended by order of the Court on 28 February 2023, be stood over and adjourned to a date to be fixed for further directions.
5.Costs be reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
FEUTRILL J
Introduction
These reasons concern the determination of remuneration and payment of disbursements and costs of Mr Cameron Shaw, Mr Richard Albarran and Mr Marcus Watters who were the voluntary administrators (and for a short time liquidators) of AMS Holdings (WA) Pty Ltd. Any remuneration and disbursements and costs are to be paid out of property of which AMS is the legal owner (whether or not held on trust) in accordance with a declaration the Court made in October 2021: Australian Securities and Investments Commission v Marco (No 9) [2021] FCA 1306.
The administrators seek a determination for remuneration of $982,885.53 (incl GST) and an order for payment of disbursements and costs in the sum of $313,208.92 (incl GST) under s 60-10 and s 90-15 of Schedule 2 – Insolvency Practice Schedule (Corporations) of the Corporations Act 2001 (Cth) for work performed in a 10-week period in late 2020. The current liquidators of AMS oppose the determination and orders sought.
At the time of the administrators’ appointment in September 2020, ASIC, as plaintiff, had commenced these proceedings and was investigating a then alleged unregistered management investment scheme operated by one or more of Mr Marco, the first defendant, AMS, the second defendant, and AMS as trustee of the AMS Holdings Trust, the third defendant. At that time, AMS had no property available for payment of its creditors because it conducted no business of its own, all its property was notionally held on trust for the AMS Holdings Trust and, upon appointment of the administrators, AMS ceased to be trustee of that trust. Further, all assets of AMS and AMS as trustee were the subject of property preservation orders made in these proceedings and were under the control of the current liquidators of AMS who were then acting as Court appointed interim receivers over those assets. Therefore, the administrators were not in control of any assets of AMS (whether or not held on trust) at any time during the administration.
After the administrators’ appointment, Mr Marco made a number of proposals that AMS enter into a deed of company arrangement. Under the terms of the DOCA proposals, the deed fund would comprise assets of Mr Marco, AMS as trustee, and members of Mr Marco’s family. All these assets were derived from funds that investors in the alleged scheme had provided to Mr Marco. Completion of any executed DOCA was conditional upon ASIC failing to obtain the relief it sought in the proceedings and the Court dissolving or varying the asset preservation orders and otherwise making orders to give effect to the transfer of the assets the subject of the proposed deed fund. At the second meeting of creditors in November 2020, the creditors did not resolve that AMS execute a DOCA, but resolved that AMS be wound up.
Ultimately, in December 2020 ASIC was successful and that resulted in orders winding up the scheme. The Court appointed the current liquidators as receivers of the assets the subject of the asset preservation orders and liquidators of the scheme and AMS. The administrators, who had by then become liquidators of AMS by operation of s 446A of the Act, were removed as liquidators at the same time: Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781.
Notwithstanding the evident absence of any property available to satisfy AMS’s creditors and the manifest risk that the conditions of the DOCA proposal would not be satisfied, the administrators performed extensive and detailed work related to investigating assets of the proposed deed fund, assessing and forming an opinion on the merits of the DOCA proposals, convening and holding creditors meetings and reporting to and communicating with creditors. The main question is whether, in the circumstances of the administration, all that work was necessary and reasonable.
Regarding remuneration, there are three principal issues for determination.
(1)Whether the administrators’ investigation into the business, property and affairs of Mr Marco and AMS as trustee (the parties involved in the then alleged scheme) was necessary in the performance of their functions and duties under Pt 5.3A of the Act.
(2)Whether fulfillment of the conditions for completion of any of the DOCA proposals was speculative.
(3)Having regard to the resolution of issues (1) and (2), whether the following work the administrators performed was necessary and reasonable.
(a)DOCA related tasks.
(b)Investigating assets of Mr Marco and AMS as trustee (assets of the alleged scheme).
(c)Adjudicating investor-creditors’ proofs of debt for the second meeting of creditors.
(d)Communicating with creditors (preparing reports to creditors, convening and holding meetings of creditors, and corresponding with creditors, including the creditors’ committee of inspection (COI)).
Separately, the liquidators apply to re-open the declaration made in Marco (No 9) on the ground that it was an interlocutory order founded on a misapprehension of the law.
Broadly, that application raises four issues.
(1)Whether the Court is empowered to re-open the proceedings before McKerracher J to consider varying or setting aside the declaration in para 1 of the orders in Marco (No 9) on the ground of misapprehension of the law.
(2)Whether the orders in Marco (No 9) are final or interlocutory.
(3)Whether the declaration in Marco (No 9) was founded upon a misapprehension of law to the effect that the administrators have an entitlement to remuneration and expenses under s 60-5 of the IPSC.
(4)If there were a misapprehension of law, whether, as a matter of discretion, the Court should disturb its earlier orders and reconsider if it has power to order the payment of costs and disbursements out of trust property and, if so, if it should make such an order in the circumstances of this case.
Depending on the outcome of the application to re-open and, if re-opened the determination of the administrators’ entitlement, if any, to payment of expenses and costs out of property AMS holds on trust, the liquidators oppose an order to the effect that the administrators are entitled to payment of legal costs out of the property of AMS. The issues arising on the question of disbursements and costs are as follows.
(1)Whether the conditional costs agreement between the administrators and their solicitors is unenforceable because it fails to satisfy the requirements of s 323(3) of the Legal Profession Act 2007 (Qld) in that the agreement does not ‘set out the circumstances that constitute the successful outcome of the matter to which it relates’ and is not ‘in plain language’.
(2)If enforceable, whether, on the proper construction of the costs agreement, the administrators have incurred a liability to pay legal costs.
(3)If enforceable, whether the administrators’ legal costs were necessary and reasonable. (This issue turns on largely the same issues as the administrators’ remuneration.)
(4)If enforceable, in any event, whether an uplift of 25% for a ‘successful outcome’ is reasonable.
The administrators claim remuneration in 15 categories of work. For the reasons which follow, the principal issues concerning remuneration should be resolved against the administrators and their entitlement to remuneration for necessary work properly performed is determined under ss 60-5, 60-10 and 60-12 of the IPSC to be $100,192.26 (incl GST) for the four categories of work referred to later in these reasons. There will be no determination of the remuneration claimed in the remaining 11 other categories of work.
The administrators claim disbursements and costs for 11 items. For the reasons which follow, the liquidators’ application to re-open should be refused. However, while the conditional costs agreement is enforceable and the administrators have and (or) will incur liability to pay legal fees under it, an uplift is not reasonable and the administrators have failed to demonstrate that the majority of the legal costs incurred are necessary and reasonable. The administrators’ entitlement to payment for necessary and proper disbursements and costs is determined under s 90-15 of the IPSC to be $84,014.37 (incl GST). All disbursements and costs have been allowed in the amounts claimed except the amounts claimed for legal costs. In respect of legal costs, the administrators are entitled to $63,044.86 (incl GST) for the four categories of legal work referred to later in these reasons. There will be no determination of the legal costs for the remaining categories of legal work.
While no determination of remuneration or legal costs has been made in respect of a number of categories because I am not satisfied that the amount claimed is for necessary work properly performed or is reasonable, the administrators should be afforded a further opportunity to obtain a determination of reasonable remuneration and reasonable legal costs for certain work identified later in these reasons. Determination of those reasonable amounts, if any, will be referred to a Registrar to be undertaken in accordance with directions of the Court. Costs will be reserved. I will hear the parties on the form of those directions and on the question of costs.
Materials
It is common ground that the administrators carry the onus of demonstrating that the amount claimed for remuneration was for necessary work properly performed in relation to the external administration of AMS. Likewise, the administrators have the onus of demonstrating that amounts claimed for disbursements and costs were necessarily and properly incurred in relation to the external administration of AMS.
The administrators read and relied upon the following affidavits at the hearing.
(a)Affidavit of Mr Shaw sworn 27 October 2020. That affidavit was read on the hearing for Marco (No 6). It describes the nature of the work the administrators had performed between their appointment and the date of that affidavit. Amongst other things, it exhibited a copy of the major report the administrators prepared and provided to creditors of AMS.
(b)Affidavit of Mr Shaw sworn 16 March 2021. That affidavit adds to the description of the administrators’ work up to 27 October 2020 and describes the nature of the work performed between 27 October 2020 and 7 December 2020. Mr Shaw deposes facts and expresses opinions to the effect that the work performed meets the criteria in s 60-12 of the IPSC.
(c)Affidavit of Mr Shaw sworn 7 May 2021. Amongst other things, that affidavit deposes facts relating to compliance with earlier orders of the Court for substituted service of Form 16 under r 9.2 of the Federal Court (Corporations Rules) 2000 (Cth).
(d)Affidavit of Mr Shaw sworn 13 January 2023. That affidavit describes the nature of the legal services provided to the administrators by their legal representatives (Thynne + Macartney) and the amounts charged for those services.
(e)Affidavit of Mr Marc Maskell sworn 13 October 2022. That affidavit describes the legal services Thynne + Macartney provided to the administrators. Amongst other things, it exhibits a conditional costs agreement between the administrators and Thynne + Macartney dated 25 September 2020.
(f)Affidavit of Mr Maskell sworn 17 January 2023. That affidavit purports to support the administrators’ application for leave to amend the remuneration application. It describes the reasons for the amended remuneration application and, in particular, provides clarification and correction of the disbursements claimed. Amongst other things, Mr Maskell deposes facts in support of a contention that the condition of the costs agreement has been satisfied and, consequently, Thynne + Macartney is entitled to a 25% uplift on the fees charged to the administrators.
The liquidators read and relied upon the affidavit of Mr Robert Brauer sworn 24 July 2020. That affidavit was also read on the hearing for Marco (No 6). It exhibits a copy of a report the liquidators prepared, as interim receivers, dated 24 July 2020. That report is referred to in these reasons as the interim receivers’ report.
Additionally, the administrators and liquidators made reference in their submissions to a report known as the ‘KPMG report’. That report also formed part of the evidence before the Court upon which the judgment in Marco (No 6) is based. As the KPMG report was referred to by both the administrators and liquidators in submissions without objection, I consider that it is before the Court on the hearing of the remuneration application and I have had regard to that report. That report was an exhibit to the affidavit of Mr Luke Howman-Giles of 24 August 2020.
Legislative framework
It is convenient to start with an explanation of the relevant legislative framework under which the administrators and liquidators were appointed together with some well-established and uncontroversial legal principles that have a bearing on the external administration of AMS and winding up of the scheme. That framework and those principles form part of the objective context and circumstances of the administration of AMS.
Part 5.3A
Chapter 5 of the Act and Ch 5 of the Corporations Regulations 2001 (Cth) deal with the external administration of a company. The IPSC, which is in Sch 2 of the Act, and the Insolvency Practice Rules (Corporations) 2016 (Cth) also deal with external administration. Part 5.3A (administration of a company’s affairs with a view to executing a DOCA) sits within Ch 5 of the Act. The Regulations, IPSC and IPRC also contain provisions dealing with administrations under Pt 5.3A of the Act.
Section 435A of the Act provides that the object of Pt 5.3A is to provide for the business property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence, or if that is not possible, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
The directors of the company may appoint an administrator: s 436A. A liquidator or provisional liquidator may appoint an administrator. The administrator so appointed cannot be the liquidator or provisional liquidator without a resolution of creditors approving the appointment or leave of the Court: s 436B. A secured creditor may also appoint an administrator: s 436C. The administrator must convene a meeting of the company’s creditors within eight business days after the administration begins (first creditors meeting) in order to determine whether to appoint a COI, and, if so, who are to be its members. The creditors may also pass a resolution at the first creditors meeting removing the administrator from office and appointing someone else as administrator: s 436E.
As soon as practicable after the administration of a company begins, the administrator must investigate the company’s business, property, affairs and financial circumstances, and form an opinion about whether it would be in the interests of the company’s creditors for the company to execute a DOCA, for the administration to end, or for the company to be wound up: s 438A. The company’s directors must assist the administrator: s 438B. The administrators are entitled to the company’s books: s 438C. The administrator must lodge reports and give information to ASIC if it appears that certain persons may have been involved in certain past indiscretions: s 438D.
The administrator must convene a meeting of the company’s creditors within 25 business days, and hold that meeting between 20 and 30 business days of the administration beginning (second creditors meeting): s 439A(1) – (5). The Court may extend the period for convening the second creditors meeting if satisfied it would be in the best interest of the creditors to do so: s 439A(6)-(8). At the second creditors meeting the creditors may resolve to execute a DOCA specified in the resolution, that the administration should end, or that the company be wound up: s 439C.
In accordance with r 75-225 of the IPRC the notice accompanying a meeting convened under s 439A must be accompanied by a report (known as the major report). The major report is a report by the administrator about the company’s business, property, affairs and financial circumstances and a statement setting out the administrator’s opinion as to whether it would be in the creditor’s interests to: (1) execute a DOCA; (2) wind up the company; or (3) terminate the administration, the reasons for the opinions, information that will enable the creditors to make an informed decision about the subject matter of the opinions and whether there are any transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Pt 5.7B of the Act.
An administrator has certain rights and powers to assist and facilitate the objects of an administration and Pt 5.3A of the Act. Division 3 makes provision for the administrator to assume control of the company’s affairs. Division 6 makes provision for the protection of the company’s property during an administration. Division 7 addresses the rights of secured parties and owners and lessors of property. Division 8 confers additional powers on an administrator relating to directors, officers, execution of documents, bringing or defending proceedings, doing other things in the company’s name and dealing with property of the company. Division 9 deals with an administrator’s liability and indemnity for debts of the administration.
An administrator is liable for debts incurred in the performance or purported performance or exercise of any of the administrator’s functions and powers for, amongst other things, services rendered and property hired: s 443A. Therefore, the administrator is personally liable for disbursements and other costs incurred in the performance or purported performance of the administrator’s functions and powers.
The administrator is entitled to be indemnified out of the company’s property (other than any PPSA retention of title property subject to a PPSA security interest that is perfected) for, amongst other things, debts for which the administrator is personally liable under s 443A and remuneration to which the administrator is entitled under Div 60 of the IPSC: s 443D. That right of indemnity has priority over certain other debts: s 443E. The administrator also has a statutory lien to secure the right of indemnity: s 443F.
Division 10 deals with the execution and effect of a DOCA. Where the creditors resolve that the company execute a DOCA, the administrator must prepare an instrument setting out the terms of the deed and the company must execute it within 15 business days after the meeting or such further period as the Court allows on application: s 444A, s 444B. Amongst other things, a DOCA must specify the ‘property of the company’ (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors’ claims, the extent to which the company is to be released from its debts, the order in which proceeds of realising the property of the company are to be distributed among creditors bound by the deed and the day on or before which the claim must have arisen to be admissible under the deed: s 444A(4). Subject to certain exceptions relating to security interests, the deed binds all creditors of the company who have claims arising on or before the date for admissible claims specified in the deed: s 444C. The effect of these provisions is that a DOCA binds the company and its creditors. It does not bind third parties. It also does not bind the creditors to give up claims against a third party (a person other than the subject company): Lehman Brothers Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 at [53] (French CJ, Gummow, Hayne and Kiefel JJ).
Although s 9 and s 435B of the Act give ‘property’ a wide meaning that extends to any legal or equitable estate of interest (whether present or future and whether vested or contingent) in real or personal property of any description, in an insolvency context, property that a company holds on trust is generally not available for distribution among the company’s creditors. The company’s property is subject to the equities and generally the company under administration cannot deal with trust property for its own benefit: Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (Amerind) [2019] HCA 20; (2019) 268 CLR 524 at [24]-[28] (Kiefel CJ, Keane and Edelman JJ), [94]-[95] (Bell, Gageler and Nettle JJ).
Principles of equity may countenance variation of the terms upon which property is held on trust with the unanimous consent of the beneficiaries of the trust if all are sui juris and absolutely entitled to the trust property. Under the principle in Saunders v Vautier (1841) 4 Beav 115; (1841) 49 ER 282 (affirmed (1841) Cr & Ph 240; 41 ER 482), beneficiaries in that position are entitled to put an end to the trust and to require that the trust property be transferred to them. Their capacity to produce that result also enables them to require, as an alternative, that the property be held by the trustee upon varied trusts (or that it be transferred to a third person): Re Dion Investments Pty Ltd [2014] NSWCA 367: (2014) 87 NSWLR 753 at [46] (Barrett JA, Beazley P and Gleeson JA agreeing at [1] and [117]).
It follows that, subject to any right to an indemnity or exoneration out of trust property, property a company holds on trust is not available for distribution among the company’s creditors and cannot be dealt with as ‘property of the company’ under a DOCA. However, in theory, trust property may become property of the company for the purposes of a DOCA if all beneficiaries consent to the transfer of the beneficial interest in that property to the company or to the company dealing with the property in a manner specified in the DOCA under the principle in Saunders v Vautier.
Chapter 5C
Chapter 5C of the Act and Ch 5C of Regulations deal with managed investment schemes.
A ‘managed investment scheme’ means, relevantly, a scheme that: (1) people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme; (2) any of the contributions are to be pooled or used in a common enterprise to produce financial benefits or benefits consisting of rights or interests in property for the people (members) who hold interest in the scheme; (3) the members do not have day-to-day control over the operation of the scheme; or a time-sharing scheme, but does not include, amongst other things, a body corporate (other than a body corporate that operates a time-sharing scheme): s 9 of the Act. Accordingly, Ch 5 and all other provisions relating to external administration of a company have no application to a managed investment scheme.
To register a managed investment scheme, a person must lodge an application with ASIC. The application must identify, amongst other things, the proposed responsible entity, the scheme’s constitution and compliance plan: s 601EA. ASIC must register the scheme unless it appears to ASIC, amongst other things, that the proposed responsible entity does not meet the requirements of s 601FA (it must be a public company that holds an Australian financial services licence authorising it to operate a managed investment scheme), the scheme’s constitution does not meet the requirements of s 601GA and s 601GB or the scheme’s compliance plan does not meet the requirements of s 601HA: s 601EB.
Where a managed investment scheme is registered, the responsible entity is to operate the scheme and perform the functions conferred on it by the scheme’s constitution and the Act: s 601FB(1). The responsible entity has power to appoint an agent: s 601FB(2), s 601FB(3). If an agent so appointed holds scheme property on behalf of the responsible entity and the agent is liable to indemnify the responsible entity against any loss or damage that the responsible entity suffers as a result of a wrongful or negligent act or omission of the agent relating to a failure by the responsible entity to perform its duties in relation to the scheme, any amount recovered under the indemnity forms part of the scheme property: s 601FB(4).
The responsible entity holds scheme property on trust for scheme members: s 601FC(2). In exercising its powers and carrying out its duties, amongst other things, the responsible entity must:
(a)act honestly: s 601FC(1)(a); and
(b)exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position: s 601FC(1)(b); and
(c)act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests: s 601FC(1)(c); and
(d)treat all members who hold interests in the same class equally and members who hold interests of a different class fairly: s 601FC(1)(d); and
(e)not make use of information acquired through being the responsible entity to gain an improper advantage for itself or another person or cause a detriment to the members of the scheme: s 601FC(1)(e); and
(f)ensure that scheme property is clearly identified as such and held separately from property of the responsible entity and property of any other scheme: s 601FC(1)(i); and
(g)ensure that the scheme property is valued at regular intervals appropriate to the nature of the property: s 601FC(1)(j); and
(h)ensure that all payments out of the scheme property are made in accordance with the scheme’s constitution and the Act: s 601FC(1)(k).
A duty of the responsible entity under s 601FC(1) or s 601FC(2) overrides any conflicting duty an officer or employee of the responsible entity has under Pt 2D.1 of the Act: s 601FC(3). Officers and employees of the responsible entity have similar duties to those of the responsible entity: s 601FD, s 601FE.
Relevantly, if the company that is a registered scheme’s responsible entity is under administration or has executed a DOCA that has not terminated, a provision of the scheme’s constitution, or of another instrument, is void against the administrator of the company or the deed if it purports to deny the company a right to be indemnified out of the scheme property that the company would have had if it were not being wound up, were not under administration or had not executed a DOCA. A right of the company to be indemnified out of the scheme property may only be exercised by the administrator of the company or the deed: s 601FH.
Relevantly, a managed investment scheme must be registered under s 601EB if it has more than 20 members: s 601ED(1)(a). A person must not operate a managed investment scheme that is required to be registered if it is not registered: s 601ED(5). If a person operates a managed investment scheme in contravention of s 601ED(5), amongst others, ASIC may apply to the Court to have the scheme wound up: s 601EE(1). The Court may make any orders it considers appropriate for the winding up of the scheme: s 601EE(2).
A registered managed investment scheme may be wound up in accordance with the provisions of Pt 5C.9 of the Act. There is no equivalent to Pt 5.3A in Ch 5C of the Act.
Where the court concludes that a person has been operating an unregistered managed investment scheme, typically the operator or a person associated with the operator of that scheme will be found to hold property of the scheme on trust for the members (investors) of the scheme. Where the scheme is insolvent and the remaining assets are insufficient to meet the claims of all investors in the scheme, then there will frequently be a contest between investors or different groups of investors in relation to the appropriate manner to divide and distribute the remaining property of the scheme. Bell P described such a contest as ‘a classic insolvency conundrum’ in Caron v Jahani (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537 at [7] in reference to an unregistered managed investment scheme operated by Courtenay House Capital Trading Group Pty Ltd and Courtenay House Pty Ltd. At the time of the administrators’ appointment, there had been many other reported decisions dealing with such contests and the appropriate method of distribution of a limited mixed fund against which many investors in an insolvent unregistered managed investment scheme had proprietary claims: e.g., Australian Securities and Investments Commission v Letten (No 20) [2012] FCA 1283; (2012) 92 ACSR 630; Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780; (2020) 147 ACSR 1.
Objects of Part 5.3A and Chapter 5C
The object of Pt 5.3A is not concerned with the administration of an insolvent managed investment scheme (registered or unregistered) or with the continuation of the business of such a scheme or the return to investors of such a scheme. While an operator of an insolvent managed investment scheme (or trustee of an insolvent trust) may be a company and that company may be insolvent and the subject of an administration under Pt 5.3A, the assets the operator (or trustee) hold on behalf of investors (or beneficiaries) are not property and business of the insolvent company and are not directly available to satisfy the debts of creditors of the company.
Chapter 7 of the Act and Ch 7 of the Regulations deal with financial services and markets. The object of Ch 7 is set out in s 760A of the Act and is to promote:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
An interest in a registered or unregistered managed investment scheme is a financial product: s 764A(1)(b), s 764A(1)(ba). As already mentioned, a responsible entity of a scheme must hold an Australian financial services licence. A person who carries on a financial services business must hold an AFSL covering the provision of the financial services: s 911A. A person can only provide financial services on behalf of another person who carries on a financial services business if the principal holds an AFSL: s 911B.
Broadly, amongst other things, Ch 7 regulates the provision of financial products and financial services. Part 7.6 deals with licensing of providers of financial services and authorised representatives. General duties and obligations are imposed on a holder of an AFSL. The grant of an AFSL is subject to certain criteria including a fit and proper person test. Providers of financial services are subject to ASIC supervision and discipline (banning or disqualification orders). There are also provisions regulating professional standards, compliance and registration of persons providing financial services. Part 7.7 regulates financial services disclosure and the provision of financial advice. In general, retail clients are to be provided with a financial services guide, a statement of advice and certain other information. Part 7.7A makes provision for obligations to act in the best interests of clients and regulates remuneration. Part 7.8 regulates other conduct connected with financial products and financial services other than financial product disclosure, including dealing with client money and other property. Part 7.9 regulates financial product disclosure and other provisions relating to the issue, sale and purchase of financial products. Part 7.9A grants ASIC powers to act proactively to reduce the risk of significant detriment to retail clients resulting from financial products. Part 7.10 deals with market misconduct and other prohibited conduct relating to financial products and financial services. ASIC has responsibility for regulating compliance with and investigating potential contraventions of Ch 7.
It follows that registration of managed investment schemes, when required, is an important part of the overall legislative framework for the regulation of financial products and financial services. Within that framework, the power of ASIC to investigate and apply for unregistered managed investment schemes to be wound up is an important part of the public policy reflected in the objects of Ch 7 of the Act. That public policy may be undermined if a company operating or involved in the operation of an unregistered managed investment scheme were permitted to avoid investigation or liability for contraventions of the Act by executing a DOCA under Pt 5.3A even if its creditors are also investors or members of an unregistered managed investment scheme and the creditors support the DOCA.
In Eco Heat (Vic) Pty Ltd v Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) [2018] VSC 156 orders were made terminating a DOCA under s 445D(1)(g) of the Act (some other reason) on grounds that included that the deed was contrary to commercial morality and public policy, in circumstances where the administrators had expressed the view that the deed was not in the best interests of the creditors and that the company under administration may have been involved in operating a Ponzi scheme or unregistered managed investment scheme. Sifris J observed (at [74]) that in the circumstances, the DOCA was not simply a private matter between the promotors of the scheme, the company and the company’s creditors. His Honour continued:
75The operation of a Ponzi scheme and/or an unregistered MIS are serious matters. They require investigation. As pointed out there is a sufficient basis for such investigation. The existence of this basis is in my view sufficient given the very small return. If the returns were much higher, the position may be different when the required balancing act is undertaken. However this is not the case.
76The is an obvious public interest in ensuring that funds advanced to promoters for investment purposes are protected and safe. In the last ten to twenty years investors have lost substantial funds and the law has developed in such a way so as to afford as much protection as possible. There were forty five Syndicate Companies and millions of dollars. The loss is over $16m. What when wrong and why are important issues affecting the public, public policy, regulation, commercial morality, and indeed the Investors despite their position. The issues cannot simply be ignored or swept under the carpet. The loss of the right to investigate is a very important matter in the circumstances of this case.
The investigation that was lost through the DOCA was that which a liquidator of the company would have been able to undertake into the possible existence of a Ponzi scheme and (or) unregistered managed investment scheme and into what had happened to the investors’ funds. The loss of the ability to investigate was also linked to the likely return to creditors/investors. Sifris J was not convinced that the creditors/investors would be worse off under a liquidation given that the return to creditors under the deed was relatively modest. In those circumstances, delayed return to creditors/investors was also warranted because a thorough investigation of what happened to the investors’ funds might yield greater recovery and returns.
The observations of Sifris J are not confined to circumstances in which creditors have resolved that the company should execute a DOCA and ASIC has not commenced an investigation into a potential contravention of s 601ED(5) by the company. Where there are grounds for an investigation (or an investigation is taking place) into a possible or probable operation of an unregistered managed investment scheme, far more is at stake than continuation of the ‘business’ of the company under administration or otherwise achieving a better return for the company’s creditors and members than would result from an immediate winding up of the company. The investigation and unwinding of unregistered schemes are an important matter of public policy, as reflected in Ch 5C and Ch 7 of the Act, in that they promote confident and informed decision making by consumers of financial products and services, fairness, honesty and professionalism by those who provide financial services and fair, orderly and transparent markets for financial products.
ASIC has extensive powers to carry out an investigation under Pt 3 of the Australian Securities and Investments Commission Act 2001 (Cth) where it has reason to suspect that there may have been committed, amongst other things, a contravention of the Act: s 13(1) of the ASIC Act. Where ASIC is investigating or has investigated under Div 1 of Pt 3 of the ASIC Act matters connected with the affairs of a company ASIC may apply to the Court for winding up of the company under s 464 of the Act. ASIC may also apply to have a company that is involved in operating an unregistered managed investment scheme wound up under s 461(1)(k) of the Act. An application to wind up a company under these provisions is founded upon public interest where there have been contraventions of the Act and (or) failures to comply with the company’s statutory and constitutional requirements resulting in a justifiable lack of confidence in the conduct and management of the company’s affairs: e.g., Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 at 530G-531G (Finn J); Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 at [95]-[98]; Marco (No 6) at [127]. Where applicable, the paramountcy of the public interest in winding up a company, as opposed to its continuing existence and business, is reflected in the Court’s power to terminate a DOCA under s 445D(1)(g) of the Act: see, e.g., TiVo, Inc v Vivo International Corporation Pty Ltd [2014] FCA 789; (2014) 9 BFRA 583 at [58]-[62] (Gordon J).
Insolvency Practice Schedule (Corporations)
External administrations commencing after 1 September 2017 are regulated by the IPSC: s 1581 of the Act; reg 10.25.01 and Sch 13 of the Regulations. Division 60 of the IPSC applies to all external administrators, which s 5-20 defines to include administrators and liquidators.
External administrators’ remuneration
Section 60-5 of the IPSC provides:
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.
Section 60-15 of the IPSC describes the maximum default amount for the purposes of s 60-5(2). As of September to December 2020, that amount was $5,388.00 (excl GST).
Section 60-10 of the IPSC provides for the determination referred to in s 60-5(1), relevantly, as follows:
60-10 Remuneration determinations
Remuneration determinations
(1)A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members’ voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made:
(a)by resolution of the creditors; or
(b)if there is a committee of inspection and a determination is not made under paragraph (a)—by the committee of inspection; or
(c)if a determination is not made under paragraph (a) or (b)—by the Court.
…
(3)A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways:
(a)by specifying an amount of remuneration;
(b)by specifying a method for working out an amount of remuneration.
…
Section 60-12 of the IPSC provides:
60-12 Matters to which the Court must have regard
In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60-11, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work by the external administrator was necessary and properly performed;
(b)the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;
(c)the period during which the work was, or is likely to be, performed by the external administrator;
(d)the quality of the work performed, or likely to be performed, by the external administrator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f)the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;
(i)the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;
(j)if the remuneration is worked out wholly or partly on a time-cost basis—the time properly taken, or likely to be properly taken, by the external administrator in performing the work;
(k)whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l)if:
(i)a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and
(ii)the matter is, or includes, remuneration of the external administrator;
the contents of the report on the review that relate to that matter;
(m)any other relevant matters.
External administrators’ costs and expenses
There is a distinction between ‘remuneration’ and ‘disbursements’ or costs and expenses an administrator incurs during an external administration of a company. It is common ground that the concept of ‘remuneration’ to which the administrators are entitled under s 60-5 and that can be the subject of a determination under s 60-10 of the IPSC does not include disbursements. That point was settled by the Full Court of the Supreme Court of Western Australia in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 100 (Kennedy and Ipp JJ, Wallwork J agreeing at 108). See, also, Re Korda; in the matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424 at [50] (Finkelstein J); Re Huxtable, in the matter of Timeshare Resort Club Ltd (in liq) [2010] FCA 673; (2010) 187 FCR 13 at [36]-[41] (Barker J); Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [15] (Gordon J).
In Venetian Nominees the Full Court of the Supreme Court of Western Australia held that the disbursements of a provisional liquidator should not be determined under s 473(2) of the then Corporations Law as part of his ‘remuneration’. Section 473(2) of the Corporations Law made it a requirement for a provisional liquidator’s remuneration to be determined by the court. Absent a determination by the court there was no entitlement to be paid remuneration. The Full Court contrasted the absence of an entitlement to be paid remuneration with the ‘right’ of a provisional liquidator as the company’s agent to ‘reimbursement from the company of all of his [or her] expenses’. Accordingly, the Full Court reasoned that ‘there would seem to be no requirement for the disbursements incurred by a provisional liquidator being “determined”, although no doubt they can be challenged.’: Venetian Nominees at 100-101. Venetian Nominees has been followed in this Court and applied to s 449E of the Act before that provision was repealed: e.g., Timeshare Resort Club at [36]-[43] (Barker J); Re Korda at [50] (Finkelstein J); Owen, in the matter of Rivercity Motorway Pty Limited (Administrators Appointed) (Receivers and Managers Appointed) v Madden (No 2) [2012] FCA 312 at [15], [18] (Logan J) and s 60-12 of the IPSC: e.g., Higgins v JSS Logistics Pty Ltd (in liq) [2022] FCA 1320 at [18] (Jackson J); Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 9) [2020] FCA 925 at [32] (Gleeson J). It is common ground that, notwithstanding these decisions concerned provisions of legislation that have been repealed, the Court also has no power to determine the administrators’ costs, expenses, and disbursements under and s 60-10 of the IPSC: e.g., Re Fearndale Holdings Pty Ltd (in liq) (receivers and managers appointed) [2020] NSWSC 901 at [30] (Black J).
In the ordinary course of events, an external administrator would be in control of the property of a company and pay disbursements the administrator has incurred (for which the administrator is personally liable under s 443A) out of that property through recourse to the indemnity in s 443D of the Act. Although, as noted in Venetian Nominees (at 101), the right to reimbursement from the company of costs and expenses may be challenged. In this case, the liquidators, and not the administrators, are in control of the property of the company and the liquidators contend that the administrators are not entitled to the disbursements claimed. In substance, the right to reimbursement is under challenge before any amount is paid out of the property rather than after such payment has been made. As a consequence, the administrators seek an order of the Court as to the amount, if any, the liquidators must allow and pay to the administrators out of the property of the company.
Division 90 of the IPSC deals with review of the external administration of a company. Section 90-20 provides, amongst other things, that a person with a financial interest in the external administration of a company, such as the administrators in this case, may apply for an order of the Court under s 90-15. It is common ground that the Court has power to declare any amount in which the liquidators should allow the administrators’ disbursements under s 90-15 of the IPSC. It also appears to be common ground, subject to the question of re-opening, that the administrators are entitled to necessary and reasonable costs and expenses incurred in relation to the administration.
The administrators’ claim for remuneration and disbursements
The administrators’ evidence in support of their application breaks the work performed down into 15 categories. The time-cost of the remuneration claimed in each category is as follows (all amounts exclude GST):
1 Preparing reports to creditors: $344,738.50 2 Adjudicating PODs including investor claims and receiving PODs: $200,653.50 3 Meeting of creditors including minutes and preparation: $138,695.00 4 Reporting to/dealing with COI meetings including minutes: $40,116.00 5 Other creditors correspondence: $39,842.50 6 Day one tasks for VA and CVL including collecting information: Nil 7 ASIC lodgements: $8,316.50 8 Administrative tasks and general discussions with directors: Nil 9 DOCA related tasks: $63,094.00 10 ASIC Court proceedings: $37,346.50 11 Investigating voidable transactions, insolvent trading and director offences including preparing s 438D report: $20,913.00 12 Investigating assets: $41,211.50 13 Investigating investments and PPPs: $75,706.00 14 Auditing/reviewing KPMG report: Nil 15 Dealing with receivers and ASIC: $40,581.50 Total $1,051,214.50
While Mr Shaw deposes facts and opinions to the effect that the sum of $1,051,214.50 is for necessary work properly performed, the administrators have applied a 15% broad-based discount, in substance, in recognition of the manner in which the work was performed with layers of supervision of increasingly junior staff and that ‘constant re-working was required as information/ideas changed in the course of the administration’. That is, the administrators sought a determination of $893,532.30 (excl GST), which is $982,855.53 (incl GST).
The administrators originally sought $257,277.00 to pay for disbursements and they now claim $313,208.92. These include: $190,680.60 for solicitors’ fees; $47,670.15 for a 25% uplift on the solicitors’ fees; $1,925.18 for transcription fees; $33.66 for solicitors’ search fees; $1,040.00 for Federal Court filing fees; $52,815.00 for counsels’ fees; $11,457.83 for room hire; $3,300.00 for property appraisals; $2,840.12 for teleconferencing fees; $699.43 for search fees; and $746.95 for ancillary costs (all amounts are inclusive of GST).
Summary of the parties’ submissions
The liquidators submit that the critical question that emerges from s 60-5 and s 60-10 of the IPSC is whether (and the extent to which) the remuneration claimed is in respect of ‘necessary work properly performed’. The liquidators contend that s 60-12 is concerned with the extent to which the remuneration claimed is ‘reasonable’ and is distinct from the requirement that it be ‘necessary’. They submit that the work be ‘necessary’ is a threshold requirement antecedent to the issue of reasonableness. The liquidators make the formal submission that they do not raise any distinct challenge to the reasonableness of the work in this case. However, they submit that much of the work was not ‘necessary’.
As to the claimed remuneration, the liquidators object principally to the work the administrators performed: (1) investigating the assets of Mr Marco and of the, then, alleged scheme; (2) work relating to Mr Marco’s three DOCA proposals; and (3) adjudicating on proofs of debt of investors as contingent creditors. In substance, the liquidators submit that there was no realistic prospect that the conditions of the DOCA proposals would be fulfilled and, in those circumstances, embarking on a course of action involving an extensive and detailed investigation of the assets of the proposed deed fund and a detailed assessment of the proposals, including consideration of contingent creditor proofs of debt, was not justified. The liquidators also submit, in effect, that applying to the Court for directions or for an extension of the time within which the administrators had to convene and hold the second meeting of creditors were obvious reasonable alternative courses of action that would not have resulted in the administrators performing work of the nature or extent of that for which they claim remuneration. These reasonable alternatives were suggested to the administrators, at the time, by ASIC and ignored by the administrators.
As to disbursements, the liquidators object to payment of the legal fees (solicitors’ and counsels’ fees). The primary objection is that the administrators have not demonstrated that the legal fees have been ‘incurred’ under the terms of the conditional costs agreement or that agreement is not enforceable under the Legal Profession Act. Alternatively, if incurred, the fees should be disallowed because the legal costs were associated with work the administrators performed in one or more of the three categories the liquidators contend was not necessary work and, as such, it was not necessary to incur the legal fees. Further, and in any event, the administrators’ evidence is insufficient to demonstrate that the legal fees were necessary and reasonable.
The administrators submit that they have discharged their onus of demonstrating that the remuneration claimed was for necessary work properly performed and is reasonable. Likewise, they submit that they have demonstrated that the disbursements were necessary and reasonable. Regarding the three categories to which the liquidators make specific objection, the administrators submit that all the work performed was necessary because they were under a statutory obligation to form an opinion as to whether it would be in the creditors’ interests for the company to execute a DOCA, or be wound up, or for the administration to end.
The administrators submit that part of their statutory duties involved investigating the ‘deed fund’ that was proposed under each of the DOCA proposals. As the proposed deed fund included personal assets of Mr Marco, it was necessary for the administrators to investigate those assets in order to give creditors an informed view as to their prospects of receiving a better return under the DOCA proposal or a winding up of the company. Further, as the DOCA proposals related to ‘investors’ in the alleged scheme, it was necessary to consider if the ‘investors’ were also ‘creditors’ of AMS. The administrators formed the view that they were ‘contingent creditors’ and, as a result, it was necessary to consider the investors’ claims submitted in proofs of debt for the purposes of determining voting entitlements at the second creditors meeting. In substance, the administrators submit that all the work they performed was unavoidable in the proper performance of their statutory obligations to form the required opinions, prepare a major report to creditors and to convene and hold a second meeting of creditors. The administrators also submit that the amount of work they performed was ‘justified’ due to ‘significant interest in a DOCA from AMS’s creditors.
Separately, the administrators submit that the Court should accept that the DOCA proposal, if accepted by the creditors and approved by the Court, had a real prospect of resulting in a better outcome for the creditors. The administrators submit that the Court should not consider the work ‘unnecessary’ on the ground that the DOCA proposal was not approved at the second creditors meeting.
The administrators also submit that the absence of any application by them during the administration for directions from the Court or relief under s 447A of the Act should not be judged with the benefit of hindsight and with knowledge of the decision the Court ultimately made on ASIC’s originating process. The administrators submit that the Court would not have been able to make orders, in effect, permitting them to ‘abdicate their responsibilities under the Act’ or for circumscribing their statutory duties and functions in relation to, in particular, providing the statutory opinion on the merits of the DOCA proposal and adjudicating on proofs of debt.
Applicable principles for determining administrators’ remuneration and disbursements
I am not persuaded that ss 60-5, 60-10 and 60-12 of the IPSC are to be construed, as the liquidators submit, as requiring, as a threshold requirement, a determination that an amount claimed is for ‘necessary work properly performed’ before considering if the amount claimed is reasonable. These provisions, as a whole, suggest that ‘reasonable remuneration’ is the governing principle.
Section 60-5(1) refers to an entitlement to receive remuneration for necessary work properly performed ‘in accordance with remuneration determinations (if any)’. If no remuneration determination is made, s 60-5(2) provides that the external administrator is entitled to receive ‘reasonable remuneration’ for the work, provided it does not exceed the maximum default amount. Put another way, the default position of Div 60 is ‘reasonable remuneration’.
Section 60-10 is cast as a determination ‘specifying remuneration that an external administrator … is entitled to receive for necessary work properly performed’, but that expression is merely a reflection of the entitlement in s 60-5(1) to receive remuneration in accordance with such a determination. Section 60-12 provides that a remuneration determination must have regard to whether the remuneration is ‘reasonable’ taking into account any or all of the matters referred to in that section. Thus, s 60-5(1) and s 60-10, read with s 60-12, also suggest that the underlying or governing principle is ‘reasonable remuneration’.
The matters to be taken into account when having regard to whether the remuneration is reasonable include, in s 60-12(a) and s 60-12(b), ‘the extent to which the work by the external administrator was necessary and properly performed’. The circuity of the concept of ‘necessary work properly performed’ in these provisions suggests that it is a requirement of, but a wider concept than, ‘reasonable remuneration’. That is, ‘necessary work properly performed’ may not be reasonable, taking into account one or more of the matters referred to in s 60-12(c)-(j). On the other hand, to the extent that work is not necessary and properly performed, remuneration for that work could not meet the description ‘reasonable’.
Perram J correctly, with respect, summarised the principles applicable to the determination of an external administrators’ remuneration under Div 60 of the IPSC in Sallway, in the matter of Mosgreen Pty Ltd (in liq) (Remuneration of Liquidators) [2019] FCA 1771; (2019) 140 ACSR 331 as follows:
9An external administrator of a company is entitled to receive remuneration for work performed by them in relation to the external administration in accordance with a remuneration determination: IPSC s 60-5(1). The Court’s power to make a remuneration determination is conferred by s 60-10(1)(c). The onus is on the liquidator to establish that the remuneration claimed is reasonable and it is the Court’s function to determine the remuneration by considering the material and bringing an independent mind to bear on the relevant issues: Sanderson v Sakr [2017] NSWCA 38; 93 NSWLR 459 (‘Sanderson’) at 470 [54] per Bathurst CJ; Morgan, in the matter of Brighton Hall Securities Pty Ltd [2018] FCA 2029 at [17] per McKerracher J.
10The principles relevant to remuneration determinations were summarised by Black J in Re Sakr Nominees Pty Limited [2017] NSWSC 668 (‘Sakr Nominees’) at [23]-[24] (see also Sanderson at 470-471 [54]-[58]):
23.… A liquidator is entitled to reasonable remuneration for his or her services and the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable and, in determining a liquidator’s reasonable remuneration, the Court will have regard to the factors specified in s 473(10) of the Corporations Act, to which I refer further below. The Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; the liquidator must lead evidence in sufficient detail that the Court can determine that question; and the Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator … Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the “value” of a liquidator’s work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors …
24.Most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided … There has been a degree of concern as to time-based remuneration, over a considerable period, although it must be accepted that remuneration on that basis is now more common … Several recent decisions, of which the previous decision of Brereton J in this case was one, have emphasised the significance of the percentage that a liquidator’s remuneration bears to the level of asset realisations achieved, and applied percentages of recoveries where time-based calculations would have led to unreasonable results … A percentage of realisations can also be used as a test of whether remuneration claims brought by a liquidator on a time costing basis are reasonable …
(Citations omitted.)
11That decision concerned the predecessor provision in s 473 of the Act, but the principles under the IPSC are materially the same so that authorities about s 473 remain apposite: Re Custometal Engineering Pty Ltd (in liquidation) [2018] VSC 726 at [18].
12The First Plaintiffs submitted, correctly in my view, that the matters as summarised in Sakr Nominees and Sanderson and prescribed by s 60-12 may be distilled into three categories:
(1)the necessary and proper connection between the work performed and the external administration: ss 60-12(a)-(b);
(2)the proportionality between the complexity of the external administration and the costs incurred: ss 60-12(c)-(i); and
(3)the reasonableness of the billing method of the administrator: s 60-12(j).
13These principles apply in fixing remuneration for both administrators and liquidators: Sanderson at 463 [12] per Bathurst CJ. It is accordingly necessary to assess the First Plaintiffs’ application for remuneration in respect of both the administration and the liquidation against these three broad considerations prior to turning to creditors’ objections to the application.
Although I do not accept that ss 60-5(1), 60-10 and 60-12 should be construed as the liquidators submit, ultimately, I do not consider that this deprives the liquidators’ objections of any force. The Court must have regard to whether the remuneration is reasonable taking into account, amongst other things, the extent to which the work was necessary and properly performed. The substance of the liquidators’ objection is that the claimed remuneration is not reasonable because much of the work was not necessary for the administration of AMS.
In Conlan as liquidator of Rowena Nominees Pty Ltd (in liquidation) v Adams [2008] WASCA 61; (2008) 65 ACSR 521 an analogy was drawn between the process of determining an external administrator’s remuneration and the process of taking accounts or taxation of costs. The administrator bears the onus of proving prima facie that a claimed item was not ‘wrongly’ charged. Here, prima facie means that the administrators’ evidence is sufficient for the Court to determine whether the claimed remuneration was reasonable including the extent to which it was necessary and properly performed. Therefore, in the case of remuneration claimed on a time-cost basis, there must be evidence of the work done by particular persons, the time taken to perform that work, the hourly rate and the reasonableness of that rate: Conlan v Adams at [27]-[31] (McLure JA, Buss JA and Newnes AJA, agreeing).
In ConlanvAdams McLure JA also observed relevantly:
[32]However, it cannot be intended that the reasonableness of each item of work undertaken should positively emerge solely from the description of the item in the schedule. If in doubt as to the reasonableness of an item, reference can and should be made to relevant documents in the liquidator’s possession relating to the work the subject of the claim: Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182 at 191; Re Medforce Healthcare Services Ltd (in liq) [2001] 3 NZLR 145 at [33]–[36]. That is consistent with the procedure for taking accounts which permits summarised accounts in accountants form with access to the relevant parties to all source documents: Atkin’s Encyclopaedia of Court Forms in Civil Proceedings, 2nd ed Vol 1, Butterworths, London, 1992 at p 612. Moreover, if the evidence is sufficient and there are objectors to the claim, then as with taking an account, the outcome of the application will ordinarily depend on the decision-maker determining the issues in contention between the parties particularly if it is apparent that the issues identified by the parties reflect a proper understanding of the guiding principles.
[33]I agree with Owen J’s observations in Conlan (as liquidator of Oakleigh Acquisitions Pty Ltd) [2001] WASC 230 at [25] that in determining whether the information supplied by the liquidators meets the requirements in Venetian Nominees regard should be had to the purpose of an account which is, among other things, to enable a person interested in the fund from which fees will be drawn to ascertain whether there are matters to which objection should be taken.
…
[44]For practical purposes, it may be of assistance to identify categories of conduct that would not represent time reasonably expended at a reasonable rate. They include, without intending to be exhaustive:
(a) work that is beyond the power of the liquidator;
(b)conduct that is negligent (whether that be in undertaking, or in the performance, of the work);
(c) unnecessary work;
(d)work undertaken by persons of inappropriate seniority (having regard to level of training and experience); and
(e)work undertaken at inappropriate hourly rates.
[45]The expression “unnecessary work” is unhelpfully vague. The first two categories of conduct (that is ultra vires or negligent) may be classified as unnecessary work, but its meaning in (c) is wider. It relates to both decisions to embark on a course of action and the work undertaken in performance thereof and is captured by the concept of “over-servicing”.
[46]As to entering upon a course of action, I agree with Ferris J in Maxwell that it is not sufficient that office holders have acted within the scope of the duties or powers conferred upon them. They are required to exercise commercial judgment in determining whether or not to act. A relevant exercise in that context would ordinarily be a cost-benefit analysis. In appropriate circumstances, other factors may displace that consideration such as, for example, the need or desirability to protect the liquidator’s position by obtaining directions from the court.
[47]As to the performance of a task reasonably embarked upon, the work done must be proportionate to the difficulty or importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered. Using an example from the law, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.
The administrators, as insolvency practitioners, must act as a prudent business-person would act in their own affairs at their own risk and cost: Stockford at [51] (Finkelstein J); Adsett v Berlouis [1992] FCA 549; (1992) 37 FCR 201 at 209, 211-212 (Northrop, Wilcox and Cooper JJ). In Adsett v Berlouis the Court observed, relevantly (at 212):
… If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not "properly incurred". The position is no indemnity because the expense is not "properly incurred". The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of determined on the facts of the particular case and in the exercise of judgment.
In principle, there is no difference in the approach to be taken when the questions of the trustee's right to indemnity and right to remuneration fall for consideration. That is, the trustee's right to remuneration is limited to this work properly undertaken. In this context, "properly" means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the Act, conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way.
…
While these principles relate to the circumstances in which disbursements are necessarily and properly incurred, they are equally applicable to the circumstances in which remuneration for work is necessary and properly performed. In that context, the expression ‘necessary and properly performed’ in s 60-12(a) ‘ought not be read as requiring that the work should have been absolutely necessary to the minimum discharge of the [external] administrator’s statutory duties’. The expression should be construed so as to give the external administrator a ‘measure of discretion’ and a ‘fair degree of latitude where they have incurred expense as a result of the exercise of their commercial judgment even if there is a loss or no advantage to the company by so doing’: Mosgreen at [15] (Perram J).
Property held in the name of AMS Receiver’s Estimated
Realisable Value
Cash at bank $8,512 Loans receivable $237,400 159 Scarborough Beach Road $1,460,000 177 Scarborough Beach Road $1,420,000 8 McDonald Street West, Osborne Park $925,000 6/182 McDonald Street, Joondanna $270,000 171A Edinboro Street, Joondanna $550,000 171B Edinboro Street, Joondanna $530,000 262 Stirling Highway, Claremont $1,260,000 2/264 Stirling Highway, Claremont $370,000 3/264 Stirling Highway, Claremont $380,000 4/264 Stirling Highway, Claremont $380,000 5/264 Stirling Highway, Claremont $825,000 Total: $8,615,912 13The Administrators and the Liquidators agree that the assets listed above are the only assets from which the Administrators could draw an entitlement (if any) to remuneration. Both parties also agree that AMS held the Property on trust, however the exact nature of the trust on which the Property was actually held is disputed.
…
In context, the reference to ‘property of the second and third defendant’ in para 1 of the orders and the declaration is a reference to the Property as defined in the reasons for decision and described in para [12]. Also, the declaration clearly treats ‘remuneration’ and ‘payment of disbursements and costs’ as separate entitlements. Paragraph 2 of the orders refers to a ‘remuneration determination … made by the Court pursuant to s 60-10(1)(c) of the [IPSC]’. It does not refer to a determination of ‘disbursements and costs’. That suggests that para 2 of the orders was not intended to refer the determination of ‘disbursements and costs’ to mediation and, therefore, remuneration was not conflated with disbursements for the purposes of s 60-10 of the IPSC.
Further, while the declaration refers to ‘payment of disbursements and costs’, the focus of the declaration and order is ‘remuneration’. The reasons for decision also focus on the determination of the administrators’ remuneration. By way of example, para [4] refers to the administrators’ claim for remuneration. Paragraph [21] refers to the administrators seeking a determination as to their remuneration from the Property pursuant to s 60-10(1)(c) of the IPSC. Paragraphs [67]–[74] only refer to remuneration. There is no mention in the reasons of any right or entitlement to be paid disbursements or costs arising from s 60-5 of the IPSC. However, para [77] recognises that the administrators also seek ‘disbursements’.
After setting out the background, McKerracher J described the issues on the determination of para 1 of the administrators’ application as follows:
16The Liquidators’ objection, in summary form, is that there is no property from which the Administrators can draw their remuneration because:
(a)they, as Interim Receivers, were in control of the Property at the time of the appointment of the Administrators;
(b)the Administrators had no role to play with respect to the Property;
(c)the Administrators did not and could not have incurred any remuneration in caring for, preserving, recovering or realising the Property; and accordingly
(d)there is no available property out of which remuneration can be paid.
17Broadly speaking, the Administrators argue that each of these four elements of the Liquidators’ objection is flawed in fact and/or at law on the basis:
(a)the Liquidators’ control over the Property is not determinative as to whether the Administrators have a right of exoneration from the Property;
(b)in fact, the Administrators had a role to play in respect of the Property and they performed that role;
(c)the Liquidators misstate the test as to whether a right of exoneration exists as it is a question of whether liabilities were incurred on trust business; and
(d)as a matter of undisputed fact, the Property exists and was, and is, held on trust by AMS and, as a matter of law, it is available to AMS as trustee and thus the Administrators in respect of its right of exoneration.
…
It was common ground in the parties’ written submissions that the Court had power to order that general administration or liquidation work be paid from assets which the company under administration held on trust. The administrators cited Staatz v Berry, in the matter of Wollumbin Horizons Pty Ltd (in liq) (No 3) [2019] FCA 924 at [202]; Lane v Deputy Commissioner of Taxation [2017] FCA 953; (2017) 253 FCR 46 at [186]; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377; Re Mackie Group Pty Ltd (in liq) [2017] VSC 477; (2017) 122 ACSR 537 at [58]-[62]; Fearndale Holdings at [20]; Bastion v Gideon Investments Pty Ltd [2000] NSWSC 939 at [71], [71] in support of that proposition. The liquidators cited Re North Food Catering Pty Ltd [2014] NSWSC 77 at [10]-[17] (and the cases there cited); Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) (No 2) [2017] FCA 653 at [149]; Re Kelly, Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111; Staatz v Berry at [202], [208]-[210]. By reference to those authorities the liquidators accepted that the Court had power, but submitted:
57.What emerges from the authorities is that there is no separate right or entitlement for administrators or liquidators to be paid for general administration or liquidation work out of trust property. Whether that will be allowed is dependent on whether it falls within the established principles (that is, whether it is pursuant to the trustee's available right of indemnity or, alternatively, under the 'salvage' principle), and is otherwise entirely discretionary.
The parties had made extensive written submissions on the extent to which an insolvency practitioner is or may be entitled to claim remuneration and costs out of trust property. The liquidators’ submissions concluded as follows:
73.There are two potential bases upon which the Administrators may have a right to claim remuneration and costs out of the Property (as now described):
(a) First, under AMS's right of indemnity as trustee.
(b) Second, under what is known as the 'salvage' principle.
74.The first basis is not available to the Administrators because their claimed remuneration and costs cannot, on proper analysis, be said to be in respect of administering or performing the relevant trust (which was a bare trust).
75.The second basis is also not available to the Administrators because none of the work claimed properly falls within the 'salvage' principle in the circumstances of this case.
76.Therefore, payment of the Administrators' claimed remuneration and costs cannot and ought not be allowed to be made from the Property and it is unnecessary go on to deal with the deferred part of the Remuneration Application relating to orders 2 to 4 of the interlocutory process.
Thus, the liquidators’ written submission expressly addressed the question of the administrators’ right (or entitlement) to claim remuneration and costs out of the Property (that is the assets AMS held on trust). Likewise, the administrators had made written submissions in which they asserted a right to be paid for remuneration and expenses incurred out of trust property. That is, the administrators and liquidators’ submissions each maintained a distinction between remuneration, on the one hand, and expenses or costs, on the other. The parties’ submissions differed in the extent to which the administrators were entitled to remuneration or disbursements in respect of work that was not directly referrable to trust property but was work in the general administration of an insolvent company.
The liquidators went on to distinguish the circumstances of this case from cases in which the power had been exercised in favour of an administrator or liquidator and ultimately submitted that ‘this is not an appropriate case where the Court can or ought to exercise its discretion in favour of allowing the Administrators to be paid for general administration or liquidation work out of the trust property’. That submission did not distinguish between remuneration and disbursements or costs and expenses of the administrator. Nor was any such distinction drawn in the authorities to which the parties referred because the power under consideration was the general power of the Court to make orders concerning the administration of trust (in Western Australia, s 92 of the Trustees Act; or s 90-15 of the IPSC; or earlier equivalent provisions of the Act). There was no consideration in those authorities of a power to order payment of remuneration (or costs and expenses) out of the trust property under s 60-5 of the IPSC.
Therefore, as between the parties, there was a disputed point of principle as to whether the right of indemnification or exoneration, and by extension the right to remuneration and payment for expenses of an insolvency practitioner, extended to all work carried out and expenses incurred in the administration of an insolvent trustee, regardless of whether such work or expenses is or are referrable to the trust property.
McKerracher J set out the applicable statutory provisions (at [21]-[26]) and then turned to consider the capacity in which AMS held its assets (at [27]-[44]). His Honour observed (at [27]) that there ‘is a fundamental need to identify, with some precision, the capacity in which AMS held its assets’ and that although the administrators and liquidators agreed that all property of AMS was held on trust, the nature and terms of the trust was disputed. His Honour concluded (at [43]) that AMS held the Property on some form of constructive trust for the investors in the scheme.
McKerracher J then addressed the concept of a trustee’s right of exoneration to which his Honour said that the parties’ submissions were substantially directed (at [45]-[66]). Ultimately, McKerracher J considered it unnecessary to resolve that dispute because, as the administrators were never in control or possession of any of the (trust) Property, they never had any right of exoneration out of that property (at [57]-[66]).
McKerracher J next considered if the statutory entitlement to remuneration under s 60-5 of the IPSC applied. In this respect his Honour said:
67The Administrators’ application proceeds exclusively on the basis that the Court should make a remuneration determination in their favour under s 60-10(1)(c) of the IPSC because they have an entitlement to remuneration under AMS’ right of exoneration. I have ruled against them on this argument; that right and indemnity was at all relevant times in the possession of the Interim Receivers such that it could not have been exercised by the Administrators. However, in my view, this is not the end of the inquiry.
68Neither party appears to have considered whether AMS is nonetheless entitled to remuneration by virtue of s 60-5(1) of the IPSC which would appear to operate precisely to that effect. That section has been set out above but warrants repeating:
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).
69This entitlement to remuneration is secured by a statutory indemnity and lien over the company’s property by virtue of ss 443D and 443F. However, the corollary of the reasoning in the previous section is that this indemnity and lien does not touch the Property held on trust (or trusts) for the investors. The reference to the ‘company’s property’ in those sections refers only to property beneficially owned by the company: see Carter Holt (at [25]-[28]). The result is that these statutory mechanisms for securing the Administrators’ entitlement to remuneration do not assist them in this case.
70Nevertheless, the entitlement under s 60-5 of the IPSC is not expressed to be subject to the security mechanisms in ss 443D and 443F. The language of the section does not permit a reading that the entitlement is lost simply because those protections are not available. Nor is there any reason to think that the entitlement is lost simply because the Administrators were appointed to a company that operated solely as a trustee. Indeed, Black J in Fearndale Holdings allowed an application under ss 60-5 and 60-12 of the IPSC for approval of an administrator’s remuneration for work undertaken in the administration of a corporate trustee.
71There are a number of decisions which would appear to suggest that the court’s approval of an administrator’s remuneration from trust property is based primarily in the discretionary exercise of the court’s inherent jurisdiction in the administration of trusts: Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941 per Palmer J (at [16] and [20]-[23]) and Re Sutherland [[2004] NSWSC 798; (2004) 50 ACSR 297] per Campbell J (at [9]-[17]). Importantly however, those cases were decided prior to the introduction of Div 60 of the IPSC. The previous mechanism for remuneration was contained in s 449E of the Corporations Act which entitled an administrator to receive ‘such remuneration as is determined… by the Court’. It did not confer on an administrator, as s 60-5 of the IPSC now does, an entitlement to remuneration independently of any determination made by the Court as to the quantum of that remuneration. The language of s 60-5 does not condition an administrator’s entitlement by reference to the availability of a company’s assets or the discretion of the Court. It simply entitles an administrator to receive ‘remuneration for necessary work properly performed… in relation to the external administration…’.
72It is not possible to conclude, as would be necessary for the Liquidators to succeed, that none of the Administrators’ activities was necessary work in relation to the external administration of AMS. Nor could it be said that none of the work was ‘properly performed’. Upon their appointment, the Administrators were required by statute to perform certain work. Of course, this says nothing about the quantum of any remuneration determination ultimately made by the Court, on which the Court retains a clear discretion, having regard to the factors set out in s 60-12 of the IPSC.
73For these reasons, order 1 of the Administrators’ application should be made. They are entitled, pursuant to s 60-5 of the IPSC, to be remunerated out of the Property, being the assets legally owned by AMS, for necessary work properly performed in the external administration of AMS. As noted, on the face of matters, the statute required the Administrators to perform the work they did.
THE WORK CARRIED OUT BY THE ADMINISTRATORS
74The Administrators are entitled to be remunerated from the Property. It would be highly desirable for all involved if agreement can be reached on the question of quantum and I will make an order referring the balance of the application to mediation to this end. If agreement cannot be reached, the matter will be referred back to the Court, however the following general observations should act as a guide to the parties in this regard.
75The Administrators have put on extensive evidence going to the categorisation of the various activities they undertook during their relatively short appointment to AMS, as well as a quantification of the remuneration they claim by reference to hours worked and rates charged.
76In the Second Shaw Affidavit, the Administrators have provided a breakdown of the activities they have undertaken into 15 separate categories with amounts claimed under each category as follows:
(a)preparing reports to creditors – $344,738.50;
(b)adjudicating proofs of debt including investor claims and receiving proofs of debt – $200,653.50;
(c)meetings of creditors including minutes and preparation – $138,695.00;
(d)reporting to and dealing with the COI, including meetings and minutes – $40,116.00;
(e)other creditor correspondence – $39,842.50;
(f)day one tasks for ‘VA’ and ‘CVL’ including collection information (i.e. books and records requests not related to investments) – no amount claimed;
(g)ASIC lodgements – $8,316.50;
(h)administrative tasks and general discussion with directors – no amount claimed;
(i)DOCA related tasks – $63,094.00;
(j)ASIC Court proceedings – $37,346.50;
(k)investigating voidable transactions, insolvent trading and director offences including preparing a report pursuant to s 438D of the Corporations Act – $20,913.00;
(l)investigating assets – $41,211.50;
(m)investigating investments and Private Placement Programmes – $75,706;
(n)auditing and reviewing the KPMG Report (see Marco (No 6) at [19]) – no amount is claimed; and
(o)dealing with the Interim Receivers and ASIC including answering their questions – $40,581.50.
77The total of the above amounts comes to $1,051,214.50 (excl. GST) and the Administrators have applied a 15% discount to this amount and seek only $893,532.30. They also seek disbursements in the sum of $257,277.
It follows that the reasons in Marco (No 9) do not specifically address the parties’ written submissions on the power of the Court to order that an administrator’s remuneration and expenses be paid out of trust property of an insolvent company. However, McKerracher J alludes to that power (at [71]) and refers directly (at [70]) to the judgment of Black J in Fearndale Holdings in which he approved an application under s 60-5 and s 60-12 of the IPSC. In Fearndale Holdings, Black J made separate orders in respect of remuneration and expenses. The remuneration was determined under s 60-10 of the IPSC, but as to expenses he said (at [30]) ‘the amount claimed from the trust property … also extends to costs and disbursements which do not require the Court’s approval under s 60-10 of the [IPSC]’.
Reading the reasons as a whole and against the background of the references to Fearndale Holdings, the point that McKerracher J makes in Marco (No 9) (at [71]) is that the Court has no discretion to order the payment of remuneration from trust property because there is an entitlement to payment of remuneration out of the property of a company (whether or not held on trust). None of the reasons are directed specifically to the question of entitlement to be paid costs, expenses or disbursements out of trust property. The reference to entitlement pursuant to s 60-5 of the IPSC refer only to an entitlement ‘to be remunerated out of the Property’ or similar expressions: Marco (No 9) (at [73], [74]).
The entitlement of the administrators to be reimbursed for costs and disbursements could not have been in doubt: Venetian Nominees (at 101). The only reference to disbursements in the reasons is a reference to an amount sought for disbursements: Marco (No 9) (at [77]). Therefore, there is no express explanation in the reasons for the order for payment of costs and disbursements out of trust property.
In point of detail, having regard to the conclusion that there was no need to resolve the point of disputed difference (at [57]), which on the parties’ submissions clearly encapsulated remuneration and disbursements, the reasons do not explain the basis for the declaration to the effect that the administrators were entitled to payment of disbursements and costs out of the Property. However, given the evident difference in references to remuneration and disbursements in the orders and reasons for decision, it cannot be inferred that the references to ‘remuneration’ in paras [67]-[74] are to be read as a reference to ‘remuneration and disbursements’. That is particularly so in circumstances in which the distinction between remuneration and disbursements (or expenses) is long-standing and addressed in the authorities to which McKerracher J referred. An entitlement to remuneration is a statutory entitlement. An entitlement to payment for disbursements (or expenses or costs) is implicit from performance of the functions of an external administrator. Therefore, there was no need for McKerracher J to discuss or address an ‘entitlement’ to payment for disbursements in his reasons as that proposition was obvious.
Having regard to all these matters, I do not consider that I should infer that McKerracher J misapprehended the law and considered that the effect of s 60-5 of the IPSC is to confer an entitlement on the administrators to be paid for costs, expenses and disbursements, as opposed to remuneration, from property of which AMS is the legal owner. It may be that there would be grounds to challenge the declaration made for legal or factual error based on the reasons (or absence of reasons) for declaring that the administrators are entitled to payment of disbursement and costs from the property of AMS, but that was a matter that could have been, but was not, the subject of an application for leave to appeal or an appeal.
In summary, I do not infer that McKerracher J overlooked the distinction between remuneration and disbursements or that his reasons reveal that he considered s 60-5 of the IPSC supplied a legal foundation for ordering that disbursements should be paid from trust property for the following reasons.
(1)The orders distinguish between remuneration, on the one hand, and disbursements and costs, on the other, and only the determination of remuneration was referred to mediation.
(2)The reasons reflect a recognition that there is a difference between remuneration and disbursements: Marco (No 9) at [77].
(3)The references in the reasons to Fearndale Holdings (in which there is express reference to the absence of any requirement of the court to approve disbursements under s 60-10 of the IPSC): Marco (No 9) at [70].
(4)The well-established principle that the administrators were ‘entitled’ to payment for disbursements.
(5)The reasons dealing with an entitlement to remuneration founded on s 60-5 of the IPSC only refer to ‘remuneration’ not ‘disbursements’: Marco (No 9) at [73], [74].
(6)The foundation for the conclusion that the administrators were entitled to payment of ‘remuneration’ out of trust property was an ‘entitlement’ to payment for remuneration under s 60-5 of the IPSC: Marco (No 9) at [71].
In the absence of any explanation in the reasons as to why McKerracher J considered that the administrators were entitled to payment of disbursements out of trust property, an inference of equal, if not greater, probability arises that McKerracher J considered that the well-established entitlement to payment for disbursements under general principles carried with it an entitlement to be paid out of trust property of the trustee debtor. That is, insofar as the liquidators had made submissions to the contrary regarding payment of disbursements out of trust property, McKerracher J had not accepted them.
As a matter of discretion should the Court disturb the orders in Marco (No 9) and reconsider if it should make an order for payment of disbursements and costs out of trust property?
It follows that there is no foundation for the application to re-open on the grounds of a misapprehension of the law. In any event, even if I were satisfied that there had been such a misapprehension, I would have refused to set aside the declaration and re-open the orders in Marco (No 9) because I do not consider it would be in the interests of justice to do so.
First, the Court clearly has power to order that an administrator’s costs and expenses be paid out of property that a company under administration holds on trust. The preponderance of recent authority favours the view that the Court has a discretion to order payment of an administrator’s remuneration, costs and expenses out of trust property whether for administering trust assets or for general administration work if the company has no assets other than trust assets: e.g., Re North Food at [17].
In Lawrence, in the matter of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478 Beach J surveyed most of the authorities to which the parties referred in their submission of the hearing before McKerracher J and concluded:
234The Court has an expansive equitable jurisdiction to allow a liquidator’s remuneration to be paid out of assets of a trust; see In the matter of M & J Super Fund Pty Limited (in liq) [2021] NSWSC 279 at [13] to [17] per Williams J.
235 As stated by Brereton J in North Food (at [9]):
(1)The court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, and this extends to a person such as a liquidator who is, for practical purposes, controlling a trustee.
(2)The court may decline to exercise that jurisdiction where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators’ remuneration costs and expenses and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company affairs. Thus, generally where a company has assets which are not held on trust, the liquidators’ costs should usually fall on its non-trust assets.
(3)Where the company has both trust assets and assets held beneficially by the company, the costs can be apportioned such that the remuneration attributable to the statutory liquidation work would fall on the assets beneficially owned by the company, whereas that which related to administering the trust property might fall on the trust assets.
(citations omitted)
236Now ASIC says that I should not allow general liquidation remuneration to be paid from any trust funds, unless that remuneration relates solely to work done in the interests of beneficiaries. But the Court has an independent equitable power to allow non-trust remuneration to be paid out of trust assets in appropriate cases, which none of the authorities cited by ASIC would deny. And it is not the case that the ability of the liquidators to have recourse to trust assets for the payment of their costs, expenses and remuneration is governed solely by the principles discussed in [13 CoromandelPlace Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377].
237Now in the present case the work conducted by the liquidators is divisible into categories of work relating to the ASIC proceedings, work relating to this proceeding, work relating to locating and reconstructing the books and records, work relating to the conduct of investigations directed to the identification of assets held and not held on statutory trust, work relating to the investigation and pursuit of recovery action against third parties who held, or potentially held, funds belonging to the relevant company, work relating to reporting to creditors and creditors’ meetings, work relating to the adjudication of creditors’ claims including the very substantial number of client creditors who are likely to be beneficiaries of any constructive trust, and other general liquidation work.
238Clearly, much of the work done by the liquidators falls squarely within the principle recognised in [In reUniversal DistributingCompany Ltd (in liq) (1933) 48 CLR 171], save perhaps for work relating to reporting to creditors and creditors’ meetings and other general liquidation work.
239Moreover, in [In re Berkeley Applegate [(Investment Consultants) Ltd (in liq); Harris v Conway [1989] 1 Ch 32], orders were made for the liquidators’ costs and remuneration to be paid out of trust property given that the work performed by the liquidator was of substantial benefit to the trust property and to the investors. Absent the liquidator performing the work, this work would have needed to be completed by the investors or by a court appointed receiver, whose fees would have ultimately been borne by the trust property in any event.
240Indeed, the principles in Berkeley Applegate go beyond those recognised in Universal Distributing. But there is a degree of overlap between the categories of work justifiable by the Berkeley Applegate principle and the Universal Distributing salvage principle, at least in the present case. The categories of work identified above each fall within the Berkeley Applegate principle, save perhaps for work relating to reporting to creditors and creditors’ meetings and other general liquidation work.
241But importantly, if delivering a benefit to the trust beneficiaries is to be used as the test by which entitlement to use trust funds to pay liquidator’s remuneration, costs and expenses is ascertained in the case of the liquidation of a corporate trustee, then it is difficult to see why remuneration, costs and expenses attributable to general liquidation work do not meet that test in the present case. A general liquidation of each relevant company was the quickest and most cost efficient way to crystallise returns to beneficiaries, whether statutory trust beneficiaries or other trust beneficiaries of whatever description.
242Moreover, in the present case the persons who will take the benefit of the general liquidation work will be the beneficiaries of the constructive trust sought by ASIC. They will take the benefit of a concerted long-term effort on the part of the liquidators to locate, recover and manage trust assets as well as to identify the claims and claimants on those assets. Work performed by the liquidators in the adjudication of creditor claims is, as a matter of practical reality, work done in ascertaining the respective entitlements that the beneficiaries of the constructive trust will have. Work done by the liquidators in reporting to creditors is, as a matter of practical reality, work done in reporting to these beneficiaries. All of this work has advantaged the trust estate. Accordingly, the liquidators’ remuneration and costs and expenses incurred in relation to all of the categories of work identified ought to be payable out of assets held on trust.
243More generally, the general liquidation work was undertaken prior to any determination of client entitlements, and necessarily involved a consideration of issues relating to the statutory trust claims and other trust claims. Consequently, although not directly related to the beneficiaries’ interest, it can be seen as broadly related to the trusts.
244Further, there is both a public interest in insolvent companies being properly administered, which must extend to insolvent trustee companies, and a plain benefit to the beneficiaries / clients in having the affairs of the relevant entities properly investigated and administered by the liquidators.
The declaration that was made concerning disbursements and costs was plainly within power and open on the evidence before McKerracher J.
Second, and related to the first point, to allow a re-opening would involve permitting the parties (in particular the liquidators) to re-agitate many of the submissions and arguments made on the application under consideration in Marco (No 9) regarding an entitlement to be paid for disbursements and costs out of trust property. That would be to subvert the finality of litigation and invite interminable arguments of the kind to which Brennan J referred in Autodesk (at 310).
Third, if the liquidators were dissatisfied with the declaration made, they were entitled to seek leave to appeal or commence an appeal from the orders. They did not do so. In those circumstances, it is difficult to see how it could be thought that the interests of justice favour allowing the issue to be re-opened when the right to appeal has not been exercised and cannot now be exercised without an extension of time.
Fourth, there has been considerable delay in bringing the application to re-open. In no sense could it be described as prompt. Indeed, it appears to be more in the nature of an afterthought.
Last, the delay is likely to have caused prejudice to the administrators in that they proceeded with their application from October 2021 to July 2023 on the assumption that their entitlement to be paid disbursements and costs out of the property of AMS was unchallenged. There is also general prejudice to the public interest in that the extent of the delay in this case undermines the overarching purpose of the civil practice and procedure provisions referred to in s 37M of the Federal Court Act.
In short, in this case, the interests of justice favour finality and the prompt exercise of rights of appeal rather than dilatory applications to re-open perfected and substantive interlocutory orders.
Conclusion
There will be a determination under s 60-10 of the IPSC to the effect that the administrators are entitled to remuneration of $100,192.26 (incl GST) in respect of the four categories of work referred to in para [189]. There will be an order to the effect that the administrators are entitled to payment of disbursements and costs in the sum of $84,014.37 (incl GST), including $63,044.86 (incl GST) for legal costs and disbursements. The costs of the application up to and including the hearing on 24 and 25 July 2023 will be reserved. I will hear the parties on the appropriate form of orders to give effect to paras [210]-[214] of these reasons and on the question of costs.
I certify that the preceding two-hundred and sixty-six (266) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill. Associate:
Dated: 10 April 2024
SCHEDULE OF PARTIES
WAD 481 of 2018 Interest Persons
Interested Person
ROBERT MICHAEL KIRMAN AND ROBERT CONRY BRAUER AS INTERIM RECEIVERS
Interested Person
CAMERON SHAW, RICHARD ALBARRAN AND MARCUS WATTERS, THE JOINT AND SEVERAL ADMINISTRATORS OF AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED)
Interested Person
CAMERON SHAW, RICHARD ALBARRAN AND MARCUS WATTERS, THE JOINT AND SEVERAL ADMINISTRATORS OF AMS HOLDINGS (WA) PTY LTD (RECEIVERS APPOINTED) (ADMINISTRATORS APPOINTED) AS TRUSTEE FOR AMS HOLDINGS TRUST (THE ADMINISTRATORS)
Interested Person
GIOVANNI MAURIZIO CARRELLO AS THE TRUSTEE IN BANKRUPTCY OF CHRIS MARCO
Interested Person
PATRICIA MAREE MARKOPOULOS
Interested Person
TONPOSE PTY LTD AS TRUSTEE FOR MARKS AUTOS SUPERANNUATION FUND ACN 008 850 057
Defendants
Fourth Defendant:
LOUGHTON PATTERSON PTY LTD AS TRUSTEE OF THE LOUGHTON PATTERSON UNIT TRUST
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