Cauchi v Exismart Pty Ltd (in liq)
[2011] VSC 246
•10 June 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2011 01774
IMO EXISMART PTY LTD (in liq) (ACN 113 024 838)
| RICHARD JOHN CAUCHI (in his capacity as liquidator of Exismart Pty Ltd (in liquidation) | Plaintiff |
| v | |
| EXISMART PTY LTD (in liquidation) (ACN 113 024 838) | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | The application was decided in chambers on the basis of the affidavit material filed by the plaintiff. The court was satisfied that all other interested parties had been notified of the application and been given the opportunity to be heard. | |
DATE OF JUDGMENT: | 10 June 2011 | |
CASE MAY BE CITED AS: | Cauchi v Exismart Pty Ltd (in liq) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 246 | |
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External administration - Corporations Act (2001) section 473(6)–application by liquidator for review of determination of his remuneration which had been fixed by a meeting of creditors pursuant to section 473(3)(b)(i) – remuneration increased.
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HIS HONOUR:
The plaintiff, Mr Cauchi, an official liquidator, makes application by originating process for approval of his remuneration as liquidator of Exismart Pty Ltd (“the company”) pursuant to s 473(3)(b)(ii) of the Corporations Act2001 (“the Act”).
The application is one properly made under s 473(6) of the Act rather than section 473(3)(b)(ii) as the creditors of the company determined the amount of remuneration at a meeting of creditors on 27 February 2008 as contemplated by s 473(b)(i). Mr Cauchi seeks that the remuneration that was determined by the creditors in a fixed sum be increased. His application involves a review of the determination of the creditors pursuant to s 473(6) as s 473(3)(b) only gives the court jurisdiction to determine remuneration if the creditors have not passed such a resolution.[1]
[1] Rule 9.4A(2) of the Supreme Court (Corporations) Rules 2003
The application complies with the procedural requirements of Rule 9.4A of the Supreme Court (Corporations) Rules (2003) as if the application had sought review under s 473(6) and I am prepared to treat it as such an application.
Mr Cauchi and Mr Peter Gountzos were appointed jointly and severally as liquidators of the company on 18 February 2008. On 21 April 2010, Mr Gountzos resigned from his appointment and Mr Cauchi continued to act as liquidator of the company.
The company originally went into member’s voluntary liquidation. It transpired that it was insolvent and following a meeting of the creditors of the company convened pursuant to s 496, it was resolved by special resolution that the company be wound up as a creditor’s voluntary winding up. Mr Cauchi and Mr Gountzos continued as joint and several liquidators.
The company owes $723,164.63 to 25 unsecured creditors. At the meeting of creditors, nine creditors either attended in person or gave a proxy to Mr Cauchi who was the chairman of the meeting.
The Deputy Commissioner of Taxation gave a proxy in favour of the chairman stating that he was owed $215,879.87. Various other creditors were represented and their debts ranged from quite modest sums to a debt for $300,000 contended to be owing to Mr Lindell, the sole director and shareholder of the company.
Mr Cauchi requests that the application should be dealt with in the absence of the public and without any attendance by or on his behalf. I am prepared to accede to this request as all the interested contradictors have been given notice of Mr Cauchi’s application for an increase in remuneration and been given the opportunity to be heard but have not taken steps to involve themselves in it. Mr Cauchi seeks an order that his remuneration be fixed in the sum of $50,000, excluding GST.
In his application, Mr Cauchi relies on his affidavits of 25 February 2011 and 6 April 2011.
At a meeting of creditors conducted on 27 February 2008, the creditors resolved that the remuneration of Mr Cauchi and Mr Gountzos be paid on a time basis and be fixed at the hourly rate set out in the schedule of fees charged by Mr Cauchi’s firm, CLJ Partners. A copy of that schedule was provided to the meeting.
The creditors also resolved that the remuneration be limited to a maximum of $25,000, excluding GST, for the period of the liquidation.
Mr Cauchi deposes that his remuneration up to 23 November 2010 totals $56,622 excluding GST, and that as at that date, he had drawn remuneration up to the capped maximum of $25,000. He now seeks the approval of the Court for an increase in his remuneration. It is not said how the remuneration notionally earned by his former co appointee, Mr Gountzos, should be accounted for but that is probably a matter for Mr Cauchi and Mr Gountzos to resolve between themselves.
Mr Cauchi wrote to the creditors of the company in a circular letter on 23 November 2010 in which he enclosed a notice of meeting of creditors to take place on 8 December 2010, a notice of appointment of proxy form, a form of proof of debt for voting purposes, an agenda for the meeting, together with a report to creditors of and a document entitled Remuneration Report to Creditors both dated 23 November 2010.
The proposed resolution for the consideration of creditors for an increase in remuneration was set out in the Report to Creditors. That document also set out a summary of the receipts and payments for the liquidation for the period from the commencement of the liquidation to 23 November 2010.
On 8 December 2010, the general meeting of creditors was held in order that creditors could receive an account of Mr Cauchi’s conduct of the winding up and to consider his request for approval for an increase in his remuneration.
No quorum was present at the meeting on 8 December and it was adjourned to 15 December 2010.
On 15 December 2010, there was again no quorum present at the adjourned meeting of creditors and the meeting lapsed. In such circumstances, the Corporations Act requires Mr Cauchi to approach the Court for approval of the increase in remuneration which he seeks.
Mr Cauchi’s affidavit of 25 February 2011 exhibits a schedule of the fees incurred as at 18 January 2011. It is a document in spreadsheet form, broken up by reference to the persons within Mr Cauchi’s firm who conducted work in the liquidation. In the narrative, it describes the task undertaken by the person identified, the time spent at that task and the fees charged. The position of those persons in the firm is not described but it is possible by reference to other materials contained in the exhibits to Mr Cauchi’s affidavit to identify the level of responsibility which those persons have within CJL Partners.
All creditors who were present in person or by proxy at the meeting of creditors held on 8 December 2010 together with the other parties identified in Mr Cauchi’s affidavit were provided with a copy of the Notice to apply for Remuneration in Form 16.
Only one creditor was physically represented at the meeting on 8 December 2010, QBE Workers Compensation (Vic) Pty Ltd (“QBE Insurance”). I note that paragraph 4 of the affidavit of 6 April 2011 states that the notice was provided to each member of the committee of inspection, however, no such committee was ever formed.
The Notice of Intention to Apply for Remuneration together with Mr Cauchi’s affidavit of 25 February 2011 has been provided to QBE Insurance and to the sole director and shareholder, Mr Lindell.
Relevant legislative scheme
The provisions which apply to an application for an increase in remuneration in circumstances such as the present are something of a labyrinth. Section 473(3) provides:
A Liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a)if there is a committee of inspection--by agreement between the liquidator and the committee of inspection; or
(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i)by resolution of the creditors; or
(ii)if no such resolution is passed--by the Court. …
I note that a resolution of the creditors was passed at the 27 February 2008 meeting as contemplated by s 473(3)(b)(i).
Section 473(4A) provides:
If:
(a)no remuneration has been fixed under paragraph (3)(a) or (b); and
(b)a meeting of the company's creditors is convened; and
(c)a resolution under subparagraph (3)(b)(i) cannot be passed because of the lack of a quorum; and
(d)there has been no previous application of this subsection to the remuneration of the liquidator;
the creditors are taken to have passed a resolution under subparagraph (3)(b)(i) determining that the liquidator is entitled to remuneration of:
(e)whichever is the greater of the following amounts:
(i)$5,000;
(ii)if an amount is specified in regulations for the purposes of this subparagraph--that amount; or
(f)if the liquidator determines a lesser amount--that lesser amount.
Because remuneration was fixed under paragraph 3(b), section 473(4A) has no application.
Section 473(6) provides:
Where the remuneration of a liquidator is determined in a manner specified in sub‑paragraph 3(b)(i) the Court may, on the application of the liquidator or member or members referred to in sub-section (5), review the liquidator’s remuneration and may confirm, increase or reduce that remuneration.
The remuneration at the 27 February 2008 meeting was determined in the manner specified in sub‑paragraph (3)(b)(i) and the court therefore has jurisdiction, on the application of Mr Cauchi as liquidator, to review and increase his remuneration (or indeed to reduce it).
Section 473(10) sets out the matters which the Court must consider when exercising its power under s 473(6) and provides:
In exercising its powers under subsection (1), (1A) or (2), 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 performed by the administrator was reasonably necessary;
(b)the extent to which the work likely to be performed by the administrator is likely to be reasonably necessary;
(c) the period during which the work was, or is likely to be, performed by the administrator;
(d)the quality of the work performed, or likely to be performed, by the administrator;
(e)the complexity (or otherwise) of the work performed or likely to be performed by the administrator;
(f)the extent (if any) to which the administrator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the administrator was, or is likely to be, required to accept 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 administrator;
(i)whether the administrator was, or is likely to be, required to deal with:
(i)one or more receivers; or
(ii)one or more receivers and managers;
(j)the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;
(k)if the remuneration is ascertained, in whole or in part, on a time basis:
(i)the time properly taken, or likely to be properly taken, by the administrator in performing the work; and
(ii)whether the total remuneration payable to the administrator is capped;
(l)any other relevant matters.”
Exhibit RGC4 to Mr Cauchi’s affidavit of 25 February, which includes the Remuneration Report to Creditors, details the work completed by Mr Cauchi’s office from the date of the appointment of the liquidators. The tasks performed included “realisation of assets”, “banking/fees administration/GST”, “creditors” (which involved communication with the priority and unsecured creditors), “general administration and investigations” (which title reveals the tasks performed), “conducting meetings” (which included compilation of notices to creditors, minutes of meetings and attendance at those meetings), and performance of “statutory obligations”. The report also identifies the individuals at CGL Partners, including Mr Cauchi and Mr Gountzos who carried out the work and the remuneration claimed for each of them which totals $56,622 excluding GST. The task categories that I have outlined above are also broken up individually for their respective hourly rate. I have also examined exhibit RJC2 to Mr Cauchi’s affidavit (which is a spreadsheet of the fees incurred) and am satisfied that the entries appearing in it conform with the chronicle of the liquidation as set out in Mr Cauchi’s affidavit. The balance of this spreadsheet records time spent at various tasks by the liquidator’s employees. Although the tasks undertaken are summarised in very succinct terms, I am satisfied that the tasks carried out by those persons was appropriate having regard to their particular position in the hierarchy of the liquidator’s organisation. I am satisfied that the hourly rate charged against the time spent for the various tasks identified is within the general range of charges of other insolvency practitioners practising in the Melbourne area. The evidence filed meets the standard described by Sheppardson J in Re Solfire (No 2)[2] appropriate for consideration by the Court on a review application.
[2] (1998) 16 ACLC 1156
In Re Stockford Pty Ltd[3] Finkelstein J of the Federal Court considered the approach to be taken in remuneration applications. His Honour stated at paragraph 47 and following of the decision:
[3] (2004) 140 FCR 424
[47] It seems to me that the proper approach is first to establish what in the United States cases fixing the fees of trustees and attorneys under the Bankruptcy Code is called the “lodestar” amount. This amount is reached by the number of hours reasonably spent by the insolvency practitioner multiplied by a reasonable hourly rate: Re Boston and Maine Corp v Moore 776 F 2d 2 at 7 (1st circ 1985); Copeland v Marshall 641 F 2d 880 at 891 (DC Circ 1980). This step will require the tribunal to decide whether the work performed was necessary to the administration, whether it was performed within a reasonable time and whether the rate is reasonable having regard to what the practitioner, and other practitioners, usually charge their clients. The “lodestar” amount should then be adjusted (up or down) to reflect other factors including the quality of the work performed, the complexity in the administration over and above the normal complexity of such work, the novelty and difficulty of the issues that confronted the administrator as well as the ultimate result obtained by him.
[48]To have his fees fixed it will be necessary for the administrator to do more than simply state the amount of time spent and the rate to be charged for that time, as happened in this case. The amount of detail to be provided in support of a claim must be proportionate to the size of the estate and the amount of time spent. A useful discussion of what is required appears in Re Medforce Healthcare Services Ltd (in liq) [2001] 3 NZLR 143 at 155:
In our view the exercise which must be undertaken by the court in fixing the reasonable costs of the liquidator is similar to that which is undertaken when approving solicitor and client costs or costs for legal aid purposes. In each case what is required is enough information to enable an assessment to be made as to whether the total costs charged are reasonable.
As a minimum it seems to us that what is required is a statement of the work undertaken during the course of the liquidation, together with an expenditure account sufficiently itemised to enable the charges to be made related to the work done. The detail would have to be sufficient to enable the judicial officer to determine whether the personnel involved in the liquidation and their respective charge out rates were appropriate to the nature of the work undertaken. Their information may in some cases raise concerns as to whether there has been overservicing or overcharging. If there are suggestions of this in the information provided, the Court can request further information.
See also Mirror Group Newspapers Plc v Maxwell (No 2) 1 BCLC 638 at 648: (“[The office holder] must explain the nature of each main task undertaken, the considerations which led them to embark upon that task and, if the task proved more difficult or expensive to perform that at first expected, to persevere in it. The time spent needs to be linked to this explanation, so that it can be seem what time was devoted to each task”); Re Solfire Pty Ltd (in liq) (No 2) [1999] Qd R 182 at 191: (“[W]hen a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the Bill of Costs in takeable form provided by a solicitor to his client…”); Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 103: (“It may well be that in a particular case information particularised as suggested by [the judge in Re Solfire Pty Ltd (in liq) (No 2)] would be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function…”).”
In my view, the amount sought by Mr Cauchi is an appropriate figure for use as the ”lodestar” amount in the circumstances. That amount is reached by the number of hours reasonably spent by the insolvency practitioner multiplied by a reasonable hourly rate. I consider that the time spent by Mr Cauchi and his employees as recorded in the exhibits referred to is reasonable having regard to the tasks performed vis-à-vis hourly rates applied to those tasks.
I now turn to apply, so far as they are relevant, the various matters mentioned in s 437(10) in the context of the present application. I observe as follows:
(a)I have assessed the entries on the spreadsheet referred to and considered Mr Cauchi’s narrative of the liquidation as set out in his affidavits and have come to the view that the work described was reasonably necessary;
(b)I have reviewed the entries on the documentation which outlines the tasks performed; I consider that the various tasks undertaken appear to have been performed by persons who are appropriate to perform them. The liquidator appears to have conducted what sophisticated commercial negotiations were required and superintendence of the tasks performed by his employees; at the other end of the scale, what might be described as the menial level communications with creditors were undertaken by employees of a relevantly junior level in the hierarchy of his office;
(c)There is no detail as to what the company’s activities were prior to liquidation but the administration of the liquidation would not seem to have been a particularly complex one. The company did not appear to trade after going into liquidation;
(d)In the course of the liquidation the company’s plant and equipment was sold for approximately $14,000. It had trade debtors of approximately $30,000. A voidable transaction claim was threatened against the Deputy Commissioner of Taxation for approximately $60,000 and was settled for $64,167.55, inclusive of interests and costs. I would not consider that that litigation had any unusual element of risk or complexity or involved particularly complex negotiations.
(e)A charge was registered over the company’s property by Benchmark Debtor Finance Pty Ltd. That company recovered its debt in full from realisations of the company’s trade debtors and from the sale of plant and equipment. Again, the presence of that secured creditor did not appear to involve the liquidator in complicated or protracted negotiations. No receiver was appointed under that charge.
(f) There is no suggestion that the administration of the liquidation involved any degree of commercial risk or responsibility which was out of the ordinary.
Having regard to the evidence which has been filed by Mr Cauchi to which I have referred, I regard the sum which he seeks as remuneration as being reasonable. I consider that on the evidence the remuneration determined at the meeting of creditors in 2008 was not adequate to remunerate Mr Cauchi for the tasks he has performed in the liquidation and I consider that it should be increased.
The liquidation however did not appear to involve any heightened degree of complexity or risk and I was minded to reduce the “lodestar” figure by 10%. I will not do so as the remuneration has already been reduced by approximately 10% from $56,622.
Pursuant to s 473(6) of the Corporations Act 2001, I will order, on a review of the determination of the remuneration of Richard John Cauchi (in his capacity as liquidator of Exismart Pty Ltd (in liquidation) (ACN 113 024 838)) fixed by the resolution of creditors of the company on 27 February 2008, that his remuneration be increased to $50,000 (excluding GST).
The costs of this application are part of Mr Cauchi’s costs and expenses in the liquidation.
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