IMO Traditional Values Management Limited (in liq)
[2012] VSC 650
•14 December 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
S CI 2011 1355
| GEOFFREY NIELS HANDBERG and BRENT LEIGH MORGAN (in their capacity as joint and several Liquidators of Traditional Values Management Limited (in Liquidation) (Receiver Appointed) (ACN 055 106 100)) | First Plaintiffs |
| - and - | |
| Traditional Values Management Limited (in Liquidation) (Receiver Appointed) (ACN 055 106 100) | Second Plaintiff |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 20 June 2012 |
DATE OF JUDGMENT: | 14 December 2012 |
CASE MAY BE CITED AS: | IMO Traditional Values Management Limited (in liq) |
MEDIUM NEUTRAL CITATION: | [2012] VSC 650 |
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CORPORATIONS – External administration – Application by liquidators for remuneration in connection with liquidation of responsible entity of managed investment scheme.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr H Austin | Mills Oakley |
| For the contradictor Mr Neil Campbell | Mr M Galvin | Middletons |
HIS HONOUR:
On 14 June 2011, Ferguson J made orders in this proceeding dealing with the issue of remuneration and expenses of the first plaintiffs (“the liquidators”) in connection with their capacity as the joint and several liquidators of Traditional Values Management Limited (in liquidation) (“TVM”).
Those orders provided, inter alia, as follows:
THE COURT ORDERS THAT:
2.… subject to Order 6[1] below:
(a)the Liquidators be paid the Remuneration and Expenses from the Scheme Assets; and
(b)The Liquidators be indemnified out of, and have an equitable lien over, the Scheme Assets for all the Remuneration and Expenses.
3.Directs pursuant to s 511 of the Act that the liquidators would be justified and would otherwise be acting reasonably in causing the Remuneration and Expenses under Order 2 to be paid from the Scheme Assets.
[1]Order 6 made procedural directions regarding the conduct of this application.
Ferguson J’s orders appended a schedule setting out definitions to be applied in the construction of her order:
“Remuneration” is defined as meaning … “such remuneration of the Liquidators as the Court will approve in respect of their administration of TVM as voluntary administrators and liquidators of TVM being remuneration incurred in:
(j)investigating the Scheme and the Scheme Assets, including ascertaining the nature, value and position of the assets and liabilities relevant to the Scheme;
(k)identifying claims which may be brought to benefit the Scheme Assets or reduce other claims against Scheme Assets;
(l)causing TVM to administer the Scheme in accordance with the Act and the constitution of the Scheme;
(m)obtaining control of the Scheme Assets;
(n)the care, preservation and realisation of Scheme Assets and identifying appropriate steps in relation thereto;
(o)causing TVM to wind up the Scheme in accordance with the Act and the constitution of the Scheme;
(p)identifying parties who may claim an entitlement in respect of the Scheme Assets;
(q)reviewing and dealing with claims by any person to any entitlements in respect of the Scheme Assets;
(r)instructing lawyers to:
(i)advise in relation to any of the matters referred to above; and
(ii)commence this application.
“Scheme Assets” are defined as meaning … “the assets held by TVM in its capacity as responsible entity of the Scheme which form part of the scheme property of the Scheme”.
“Expenses” are defined as meaning “expenses incurred in the voluntary administration and liquidation of TVM save for those in respect of which an express right of reimbursement and/or indemnity is conferred by the constitution of the Scheme, being expenses incurred in:
(a) investigating the Scheme and the Scheme Assets, including ascertaining the nature, value and position of the assets and liabilities relevant to the Scheme;
(b)identifying claims which may be brought to benefit the Scheme Assets or reduce other claims against Scheme Assets;
(c)causing TVM to administer the Scheme in accordance with the Act and the constitution of the Scheme;
(d)obtaining control of the Scheme Assets;
(e)the care, preservation and realisation of Scheme Assets and identifying appropriate steps in relation thereto;
(f)causing TVM to wind up the Scheme in accordance with the Act and the constitution of the Scheme;
(g)identifying parties who may claim an entitlement in respect of the Scheme Assets;
(h)reviewing and dealing with claims by any person to any entitlements in respect of the Scheme Assets;
(i)instructing lawyers to:
(i)advise in relation to any of the matters referred to above; and
(ii)commence this application.
The “Scheme” to which the orders refer is the registered management investment scheme known as the Blue Diamond Deposits Trust No. 1 (“BDT”).
In paragraph 6(a) of her Honour’s orders, she referred to an Associate Justice the assessment of the quantum of the Remuneration to be paid under orders 2 and 3 of the orders of 14 June 2011.
On 22 February 2012, the liquidators issued an interlocutory process seeking the fixing of the Remuneration as contemplated by the order of 14 June 2011. The application is supported by voluminous material contained in six affidavits of one of the liquidators , Geoffrey Handberg, sworn as follows:
(i)11 March 2011 (“first Handberg affidavit”);
(ii)10 June 2011 (“second Handberg affidavit”);
(iii)22 August 2011 (“third Handberg affidavit”);
(iv)22 February 2012 (“fourth Handberg affidavit”);
(v)23 April 2012 (“fifth Handberg affidavit”); and
(vi)18 June 2012 (“sixth Handberg affidavit”).
On 23 March 2012, I ordered that the liquidators file and serve any further affidavits and their submissions in support of their application on Resort Securities Pty Ltd, Holiday Concepts Management Ltd and Neil Campbell. Those persons had identified themselves as contradictors to the application as a result of being served with it under the terms of paragraph 6 of Ferguson J’s orders of 14 June 2011.
On 20 September 2011, Resort Securities Pty Ltd (“Resort Securities”) and Holiday Management Ltd (“Holiday Management”) filed a detailed objection to the application but they did not appear at the hearing on 20 June 2012. Mr Campbell appeared through his counsel Mr Galvin, who adopted certain of Resort Securities’ and Holiday Managements’ objections and made written and oral submissions at the hearing of the application.
The application is not one in which I exercise the jurisdiction of determining and fixing liquidators’ remuneration under statutory provisions of the Corporations Act 2001 (Cth) (“the Act”), such as s 449E(1)(c) for voluntary administrators, or for liquidators under s 473(3). Rather, Ferguson J’s orders involve the exercise of the inherent equitable powers of the Court.[2] It will be seen by the definition of “Remuneration” in her Honour’s order that although my task is different to that which occurs under the exercise of the statutory powers, the criteria which I apply to the exercise of determining and fixing the Remuneration in this application is very much akin to that process.
[2]See Re Sutherland (2004) 50 ACSR 297, 299-300, [10]-[11] (Campbell J).
The remuneration of the liquidators in respect of their external administration of TVM has already been determined and fixed by the creditors under s 449E(3)(b) and s 499(3)(b) of the Act in amounts which exceed the amounts the subject of the present application. My task involves ascertaining how much of the remuneration which has already been approved by the creditors under the statutory provisions to which I have made reference is “Remuneration” properly so called within the meaning of her Honour’s orders. If the creditors had not approved of the remuneration, then the liquidators would have also had to seek orders from me determining those amounts under the relevant statutory provisions.
The liquidators submit, and I agree, that the application before me should be approached in a similar way to a statutory remuneration application under those sections.[3]
[3]See discussion below at [19]-[21] referring to Thackray v Gunns Plantations Limited (2011) 85 ACSR 144, 164, [59]-[64] (Davies J)
Background
The liquidators were appointed joint and several administrators of TVM pursuant to s 436A of the Act on 17 December 2009. On 3 February 2010, at a meeting convened by the liquidators under s 439A of the Act, the creditors resolved that TVM be wound up in insolvency and that the administrators be appointed joint and several liquidators in the winding up.
TVM is the responsible entity of BDT, a registered managed investment scheme. On 10 August 2010, on the application of the liquidators, Davies J made orders that BDT be wound up by TVM pursuant to s 601ND of the Act.
The liquidators’ investigations revealed that in practise, TVM’s only business was its operation of BDT as responsible entity and a vast majority if not all of its creditors were contracted in relation to such activities.
In March 2000, TVM engaged Dantay Pty Ltd (“Dantay”) as its agent for the purpose of assisting it as the responsible entity of BDT. Between March 2000 and July 2009, the directors of Dantay, Messrs Daniels and Taylor, in their capacities as directors or employees of Dantay, or, in the case of Mr Daniels, in his capacity as compliance officer under the BDT compliance plan, managed TVM’s and BDT’s business in all material respects.
BDT is a registered unlisted managed investment scheme which operates a mortgage fund. The investors in BDT were typically ordinary retail investors who were introduced to BDT by their financial advisers. The investments made by TVM as responsible entity for BDT fell into two broad categories, being either:
(a) commercial investments with corporations and parties related to them, such as their directors, for various purposes including loans, assignment agreements and joint venture agreements, or
(b) personal loans to individuals, which were most often advanced to assist in the purchase interests in time share holiday units and apartments.
As at 17 December 2009, BDT’s personal loan assets were valued at approximately $4.334 million, comprised of approximately 320 loans with terms of between 10 and 15 years. As for the commercial investments, approximately $23 million is outstanding, comprised of 13 borrowers. Almost all of those loans are in default and have been so for a number of years; it is considered that they will not be recoverable.
Legal principles
Before turning to consider the application, it is appropriate to set out the general legal principles which apply to these types of matters.
As I have already observed, I consider it appropriate to apply the principles in this application to those which apply in a conventional statutory remuneration application. In Thackray v Gunns Plantations,[4] Davies J, when faced with a very similar application by the receivers and managers of Great Southern Managers Australia Limited, a responsible entity of 45 managed investment schemes, stated at [59]:
The receivers have the burden of establishing their entitlement to an indemnity for the amounts claimed. They have argued that the procedure by which they are to establish their entitlement should be the same as the procedure which applies when a liquidator asks the Court to determine his or her remuneration under s 473(3) of the Act. No party objected to this course and it seems to be a sensible approach to take.
[4](2011) 85 ACSR 144 (“Thackray”).
At [60], her Honour summarised the principles to be applied by reference to the decision of the Full Court of the West Australian Supreme Court in Venetian Nominees v Conlan[5] as follows:
(a)A summary procedure was involved, not unlike that applicable to the taxation of solicitor’s costs, which is not necessarily subject to all the rules that would apply in an action.
(b)The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment “bringing an independent mind to bear on the relevant issues” even though at that point there is no objector.
(c)There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.
(d)If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made.
(e)If there are objectors to the claim or any part, the Court should then establish the validity of those objections.[6]
[5](1998) 20 WAR 96 (“Venetian Nominees”).
[6]Thackray (2011) 85 ACSR 144, [60] (citations omitted).
At [63] and [64], her Honour stated:
The receivers argued that the standard of proof on their application cannot be higher than the standard on insolvency practitioners for the purposes of s 473(3) of the Act, which is to establish that the remuneration claimed is fair and reasonable. They argued that the standard is lower, if anything, because they were privately appointed and have claimed amounts under equitable principles and do not seek to have their remuneration fixed, or their expenses approved, by the Court. They argued that the Court’s primary interest in that circumstance is to determine that their claim is not excessive. Nevertheless, the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers. The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work[7] and justification of the hours spent.[8] That amount can then be adjusted up or down to reflect other factors including:
(a)complexity above the norm for the kind of work involved;
(b)novelty and difficulty of the issues faced;
(c)the ultimate outcome obtained by the claimant.
The Court is looking for evidence of overcharging. Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided. But there is no universal approach applicable in all circumstances by which the “reasonableness” of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[9]
[7]Mirror GroupNewspapers Plc v Maxwell (No. 1) [1988] BCC 324, 334.
[8]Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424, 442 [47].
[9]Thackray (2011) 85 ACSR 144, [63]-[64] (citations omitted).
In ASIC v Australian Foods Co Limited,[10] a court appointed receiver and manager put forward a detailed statement of time, costs and disbursements (which he confirmed was true and correct) itemising the details of the work done, the identity of the persons who did the work, the grade of the person who did the work and the time taken for doing the work, and the rates charged. The annexures to the supporting affidavit provided considerable detail as to what was done. Master Sanderson stated:
There is nothing surprising in any of this material. Clearly, it is drawn from timesheets maintained by each of the individuals concerned. If necessary, those original timesheets could be called for, but in all probability they would add little to the information provided by the receiver. The way in which the receiver and his staff have recorded the time spent accords with standard commercial practice. The actions taken by each individual concerned are adequately, if cryptically, described. It is difficult to see what further information could have been provided.[11]
[10][2005] WASC 110 (“Australian Foods”).
[11]Ibid [16].
Master Sanderson concluded that the information provided established prima facie that the work was done and the costs were reasonably incurred. His reservations were first, that the material did not provide a sense of what the receiver and his colleagues were attempting to achieve and the overall purpose behind those actions, and, secondly, the fact that such significant costs had been incurred in a relatively short space of time.
The Court of Appeal of the Supreme Court of Western Australia in Conlan as liquidator of Rowena Nominees Pty Ltd (receivers and managers appointed)(in liquidation) v Adams & Ors,[12] again considered the issue of entitlement to liquidator’s remuneration following on from Venetian Nominees. After stating at [30] that the liquidator bears the onus of establishing a prima facie case for determination, McLure JA took up the issue of time based costing at [31] to [47]. Her Honour’s survey conveniently collects the principles for application. She stated:
[12](2008) 65 ACSR 521 (“Conlan”).
The expression “prima facie” is used in Venetian Nominees to mean that the claimant’s evidence is sufficient to enable the court to determine whether the claimed remuneration is fair and reasonable. So, for example, there must be evidence relating to the work done by particular persons, how long it took to do the work, their hourly rate and the reasonableness of the rate.
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.
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.
The respondents rely on Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430 for their contention that, in the event the liquidator fails to establish a prima facie case, the court is entitled to take a broad-brush approach to the assessment of remuneration. Re Reiter concerned a claim for remuneration by a provisional liquidator of a small Tasmanian company with only one work contract. The provisional liquidator, Mr Lee, lived in Sydney. The liquidation work was done by a Tasmanian firm of accountants who directed liquidation work to Mr Lee for which he received one tenth of the remuneration. The provisional liquidator claimed $56,871. He was awarded $27,500. The trial judge made positive findings on all objections raised to the claim. The objections were appropriately specific. The trial judge found, in summary, that the applicant did a substantial amount of work which he ought not to have done including preparing directors’ reports, working on a winding-up application that was not justified in the circumstances and work done after the cessation of his appointment. In considering each objection, the trial judge identified the amount claimed for the work and determined whether it should be disallowed in full or in part.
Remuneration was claimed on a time-cost basis in accordance with the scale recommended by the Insolvency Practitioners Association of Australia. The trial judge discounted the hourly rate because the company was small, there was an increase in the cost of doing the work by virtue of the provisional liquidator being in Sydney and because he had reservations about the reasonableness of the amount of time spent by the applicant on work properly done. The trial judge fixed the remuneration in a lump-sum taking as his starting point the amount claimed by the applicant and making deductions therefrom in respect of the specific matters on which he had made findings. He described that as having taken a “somewhat broad-brush approach”.
Two points should be noted about Re Reiter. There is nothing in the reasons for judgment to suggest there was insufficient material upon which to make a determination as to whether the claim for remuneration was fair and reasonable. Further, the trial judge made findings on the specific objections, identifying what if any amount was reasonable for the work the subject of the objection. The approach taken by the master in this case bears little similarity to that taken by the primary judge in Re Reiter.
It was accepted by all parties in this case that a time-cost basis for determining remuneration was appropriate. That concession accords with Venetian Nominees at [105]–[106]. However, it is accepted that time-based costing has potential drawbacks and can be abused. Lawrence J in In Re Carton Ltd (1923) 39 TLR 194, after referring to the usual English practice of adopting a scale based on a percentage of realisations and distributions, said (at 197):
Experience has shown that the time occupied by a liquidator and his clerks affords a most unreliable test by which to measure the remuneration. Even the best accountant may spend hours over unproductive work, let alone his more or less efficient staff or clerks. Moreover, it is quite impossible to check charges based on such a system and to gauge the value of odd hours said to have been spent on the affairs of the company.
An hourly fee is said to create an incentive to run up hours and to do too much work in relation to the stakes of the case: Kirchoff v Flynn (1986) 786 F 2d 320 (Easterbrook J).
Mindful of the disadvantages associated with time-based costing, courts in England and Australia have identified the object to be achieved and criterion to be applied in determining what is reasonable remuneration when faced with a time-cost remuneration claim: Mirror Group Newspapers plc v Maxwell (No 2) [1998] BCC 324; Re Korda; in the Matter of Stockford Ltd (2004) 140 FCR 424 ; 52 ACSR 279 ; [2004] FCA 1682; Ferris J said in Maxwell (at 336–7):
In my judgment it is vital to recognise three things in this field. First, time spent represents a measure not of the value of the service rendered but of the cost of rendering it. Remuneration should be fixed so as to reward value, not so as to indemnify against cost. Secondly, time spent is only one of a number of relevant factors … The giving of proper weight to these factors is an essential part of the process of assessing the value, as distinct from the cost, of what has been done.
The other relevant factors identified by Ferris J were the complexity of the case, the extra responsibilities on the liquidator, the effectiveness of the liquidation and the value and nature of the property involved in the liquidation.
The word “value” in this context does not mean the net financial benefit to the creditors. Rather, it means the value of the services rendered by or on behalf of the liquidator which in turn is addressed by the question whether the time was reasonably expended in the circumstances of the particular liquidation.
After a comprehensive review of the relevant issues, Finkelstein J concluded in Re Korda (at [47]):
It seems to me that the proper approach is first to establish what … 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 … This step will require the tribunal to decide whether the work performed was necessary to the [liquidation], 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 [liquidator] as well as the ultimate result obtained by him.
In fact, some of the lodestar factors identified by Finkelstein J would be taken into account when determining whether the number of hours spent and the hourly rate were reasonable.
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.
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”.
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.
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.[13]
[13]Ibid [31]-[47].
In Re ACN 004 323 184 Pty Ltd,[14] Dodds–Streeton J considered an application for remuneration under section 473(3)(b) of the Act . The affidavit in support of the application, the liquidator summarised the tasks performed by each staff member with that person’s charge rate, level or position, hourly rates and total hours worked, together with full descriptions of the work performed. At [43], her Honour stated:
I accept Mr Woodward’s submission that the material adduced by the respondent in this case satisfies the requirements of Rule 9.4(7) of the Corporations Rules. It also satisfies the basic principle of Venetian Nominees, in that there is sufficient information for the Court to determine that the amounts claimed are fair and reasonable . The material sets out the person performing the work, the grade or level of the relevant person , the task and dates, time spent on the task and the relevant rate according to the level of the person carrying out the task. It is undisputed that the work was carried out for the purpose of the winding up.[15]
[14][2002] VSC 353.
[15]Ibid [43].
The application for Remuneration
I now move to a consideration of the assessment of the Remuneration.
The liquidators seek that their Remuneration be assessed for two periods, the first for the period when they acted as voluntary administrators, from 17 December 2009 to 3 February 2010. The second period relates to their tenure as liquidators, from 3 February 2010 to 8 July 2011.
For the period they acted as voluntary administrators, the liquidators seek that their Remuneration be assessed at $178,718.82. The total amount of the claim for remuneration during that period is actually $184,326.32, but the liquidators have deducted $5,607.50 in respect of work which they concede relates purely to the liquidation of TVM.
On 3 February 2010, the creditors of TVM approved the liquidators’ fees in respect of the liquidators’ administration of TVM for the period 17 December 2009 to 18 January 2010 at $144,326.32 and for the period 19 January 2010 to 3 February 2010 at $40,000. Mr Handberg deposes in his third affidavit that the liquidators will not seek to be remunerated for a further $39,097.68 for work done by them during the voluntary administration period.[16]
[16]Third Handberg affidavit, [46].
The work performed by the liquidators and their staff in respect of this part of their claim for assessment of Remuneration is described in considerable detail in Mr Handberg’s first[17] and third affidavit.[18]
[17]Ibid [56]-[63].
[18]Ibid [26]-[51]. The first plaintiffs have determined to exclude the amount of $84 in respect of lodgement of statutory documents for this application but will consider raising a claim for that amount at a later time at page 9.
Mr Handberg’s fifth affidavit[19] exhibits a copy of the Remuneration Report for the administration and subsequently the liquidation. This document serves as a convenient summary of the material contained in the previous affidavits. I have reviewed this document which consists of over 1,100 pages of spreadsheet formatted material. I am satisfied that on an application of the “prima facie” criteria in VenetianNominees and the other authorities referred to above, it substantially meets the requisite standard so as to enable me to embark on the task at hand. In this regard, it identifies, in a table of the exhibit, the hierarchy in Messrs Handberg and Morgan’s firm by reference to position description i.e. administrator, manager, senior accountant, intermediate accountant, executive assistant and administrative officer. It also identifies the rates which are charged for the time of those persons.
[19]Exhibit GNH-39.
The amounts charged by Messrs Handberg and Morgan are within the range of the hourly rates which are quoted in schedules to consents by liquidators appointed to act in court appointed windings up. The hourly rates charged for work performed by the other members of the liquidators’ staff fall in with what I would regard as being appropriate having regard to their particular station within the firm. In his submissions, Mr Galvin abandoned that issue which was raised in the notice of objection filed by the other objectors and initially adopted by him and conceded that Mr Campbell does not dispute the reasonableness of the charge-out rates of the liquidators and their staff and.
The work performed by the liquidators and their staff is classified into three categories described as:
1)BDT work, for work which was undertaken solely for the purposes of the proper administration of BDT.
2)TVM work, for work which has been undertaken solely for the purpose of the administration and then the liquidation of TVM.[20]
3)BDT/TVM work, for work undertaken for the “dual purpose” of both the administration and the liquidation of TVM and for the purpose of the proper administration of BDT.
[20]No claim is made by the liquidators for the TVM work in this application as the work falls outside the scope of the definition of Remuneration in the orders of Ferguson J.
During the administration period, the liquidators and their staff recorded their work on a time cost basis on a single job code.
The claim for assessment of Remuneration for the period when the liquidators were liquidators has been categorised under 13 separate job codes detailing the major tasks associated with the conduct of the winding up. The Remuneration Report contains background information which enables the job code and overall purpose behind the work associated with it to be contextualised. It includes reference to tasks carried out in connection with particular transactions and issues with which TVM was involved, by reference to the subject transaction, for example, Alma Group, Shelbourne, Weerappah, EWM, Sentaurs and Blaze. Also included are claims for Remuneration incurred in connection with the conduct of public examinations pursuant to s 596A and s 596B of the Act and other specified roles undertaken by the liquidators. It describes the work undertaken by the liquidators with specific reference to the job code to be read together with the time sheet narrations.
The Remuneration Report contains a table detailing the time and costs of that job code broken down into the hours spent by each of the liquidators’ staff members and their respective hourly rates so as to assist in determining whether the liquidators have properly delegated work to the appropriate staff member. The Remuneration Report also contains the time sheets for each respective job code created by the liquidators and their staff, together with narrations describing the work undertaken for each entry.
The Remuneration Report also sets out separate tables of remuneration claimed under each of the 13 job codes by reference to the Insolvency Practitioners Association of Australia (“the IPAA”) Remuneration Report format. The IPAA format tables divide the remuneration claimed into seven broad categories of tasks performed by the liquidators. The categories include Assets, Creditors, Employees, Trading on, Investigation, Dividend and Administration.
I consider that the Remuneration Report is sufficiently detailed to enable the Court to determine why the activities undertaken were necessary and performed by the appropriate member of the liquidators’ staff. Like Master Sanderson in Australian Foods,[21] from a practical point of view, I find it difficult to see what further information could have been provided. One also has to have regard to the cost and utility of proving such further detail if it was practicable to produce it.
[21]Australian Foods [2005] WASC 110.
On my review of the Remuneration Report, I consider that it complies with the requirements of Rule 9.4(7) of the Supreme Court (Corporations) Rules2003 and establishes that the Remuneration sought is prima facie fair and reasonable.
I accept the liquidators’ submission which rejects the comparison with the material which was the subject of criticism in Venetian Nominees, where the evidence suffered from the defect of the tasks being described in an all embracing fashion without specifying who performed them and how long they took to perform each task. There, many of the tasks were described in such a way that it was impossible to discern why they were necessary, what precisely was involved in performing them and what level of complexity or responsibility attached to them. This is to be contrasted, it is said, with the liquidators’ summary of the description of the work carried out, together with detailed information as to the individual task performed, who performed each task, how long each took and the amount claimed in respect of it. In that regard, Mr Austin made reference to the remarks of Dodds‑Streeton J in Re ACN 004 323 184 Pty Ltd,[22] where her Honour stated:
I am satisfied that none of the objections or issues raised … , by affidavit or in submission, displaces the liquidator’s prima face entitlement to the additional remuneration sought. It is not disputed that the work was done and that the calculations and details in the supporting schedules are correct. The objections or concerns take the form of unsubstantiated allegations or beliefs, which go to the appellant’s disagreement on matters of judgment by the liquidators and dissatisfaction with the amount realised. The legislation contains a number of avenues providing for inquiry into or complaint concerning the conduct of a liquidator. However, as a general rule, in the absence of fraud or bad faith, the Court will not interfere with the liquidator’s exercise of commercial judgement and decisions on the administration of the company’s property.[23]
[22][2002] VSC 353.
[23]Ibid, [48].
As I have noted, two sets of objections have been filed to the liquidators’ claims for remuneration. In their objection dated 20 September 2011, Resort Securities and Holiday Concepts confine their criticism to the claim for remuneration in respect of the personal loan assets (which they describe in the objection as Timeshare loans). Their complaints could be summarised as follows:
(a)there is no proper accounting of remuneration claim referrable to the Timeshare loans for the voluntary administration period of 17 December 2009 to 3 February 2010;
(b)the fee scale used by the liquidators was objected to;
(c)the level of detail in Exhibit GNH-12 was insufficient;
(d)the narration did not disclose what was done or whether it was necessary;
(e)time spent on administrative tasks was objected to;
(f)the overall quantum of time spent on the Timeshare loans was objected to; and
(g)work claimed was straightforward and mechanical and should have been done by a former employee of the company rather than by the first plaintiffs or their staff.
Despite being served with notice of the hearing of this application, Resort Securities and Holiday Concepts did not appear to press the matters raised in their objection at the final hearing of the application but Mr Galvin adopted certain of the objections in his submissions.
Mr Campbell complained in his objection dated 19 October 2011, in summary, as follows:
(a)there was insufficient evidence;
(b)it is not possible to work out how costs are calculated;
(c)there is no complete reconciliation of the costs claimed;
(d)there was no explanation as to how tasks were delegated between different ranks of employees;
(e)the narratives were even worse than those held to be inadequate in Venetian Nominees; and
(f)it was difficult to tell because of the level of detail whether costs incurred were reasonable.
The two sets of objections filed are not supported by affidavit. The liquidators say that the objectors have not adduced evidence, expert or otherwise, in support a claim that the material filed by the liquidators was inadequate for the purpose of properly assessing whether the remuneration claim was fair and reasonable or that the relevant actions were necessary. Mr Galvin provided detailed written submissions in relation to Mr Campbell’s objections. I note at the outset that Mr Campbell does not maintain his objection based on the dispute as to the reasonableness of the charge out rates of the first plaintiffs and their staff.
As to the work performed by the liquidators as administrators, Mr Galvin observed that the time sheets relating to the voluntary administration period evidence work was done in respect of six matters, being:
(a)Timeshare;
(b)loans A (Oil Growers Group);
(c)loans B (Alma Group);
(d)loans C (Shelbourne);
(e)Weerapah loan; and
(f)ADF.
Mr Galvin states that the task descriptions and the time sheets evidence that the time charged related largely to issues concerning the secured creditors and no objection was maintained. The only objection is a claim for $84 for the filing of documents at (which, as I have already noted, is not presently being pressed by the liquidators). Mr Galvin submitted that it does not appear that any other charges relate to work carried out exclusively for the purpose of TVM and not the BDT. As such, subject to the deduction mentioned, and the application of the statutory criteria mentioned in s 473(10) of the Act, I will allow the liquidators Remuneration in the administration period in the amount they claim.
Mr Galvin’s submissions then moved on to consideration of the work said to have been performed by the liquidators as the liquidators in the creditors voluntary liquidation which is referable to both TVM and to BDT. He adopts the description of the various categories of tasks said to have been performed in this regard from the liquidators Remuneration Report.
Mr Galvin states in his submissions:
The Contradictor accepts that the work relating to the claims of the secured (and unsecured) creditors falls within a number of the categories of work in the Remuneration Definition [of her Honour’s order]. However he contends that attendances on ASIC and the lodgement of statutory returns is properly characterised as work arising out of the applicant’s appointment as liquidators of TVM and not work within the Remuneration Definition.
Mr Galvin submitted that much of the work described in the time sheets appears on its face to relate to performance by the liquidators of their statutory obligations of liquidators of TVM, for example the convening of a meeting in the preparation of a report under s 508 of the Act and preparation of accounts of receipts and payments and not strictly to the affairs of BDT.
Further, he submitted, many of the items relate to the preparation of a Remuneration Report, presumably for the purposes of this application and such items are outside the scope of the Remuneration definition. So much was accepted in regard to the costs of the remuneration application by Mr Austin in his submissions in reply and a deduction should be made from the liquidator’s claim to reflect that.
In his written submission, Mr Galvin annexed annotated copies of the relevant time sheets, noting objections on the basis that they relate exclusively to the affairs of TVM and items relating to the application for remuneration. Those items that are objected to on the basis that their nature or purpose is not adequately identified are also identified.
Mr Galvin’s submissions then turned to the issue of the work performed by the liquidators as liquidators in the creditors’ voluntary liquidation referrable to Personal Loan Assets. Exhibit GNH-28 to the fourth Handberg affidavit is a flowchart which illustrates how the tasks performed in connection with the recovery of the personal loans were allocated within the hierarchy of the liquidators’ firm and what those tasks involved. A total of 1,780 hours were spent in connection with pursuing defaulting mortgagors and collecting the loan book and $1.8 million was collected. Mr Galvin accepted that work within the categories described falls within the definition of Remuneration in her Honour’s orders, however, he adopts the objections made in the Resort Securities and Holiday Concepts’ Notice of Objection relating to the apparent excessive costs incurred in recovering the personal loans. He submitted that some tasks which appear to be of a clerical nature have been charged out at the liquidators’ rate of remuneration. However, he is otherwise satisfied that the work described in the relevant time sheets is work within the Remuneration definition of her Honour’s orders. As such, in the absence of specific rather than generic criticism, I will not make any deduction in regard to this category of claim.
As to the work performed by the liquidators as liquidators in the creditors voluntary liquidation referrable to collection of loans and enforcement of securities relating to the collection of debts and realisation of securities, Mr Galvin accepts that the categories of work identified by the liquidators fall within the Remuneration definition but in the absence of detailed knowledge of the matters, including the associated litigation, he states it is not possible for the contradictor to comment on the necessity or reasonableness of many of the tasks noted in the time sheets. However, he does say that on their face the items seem to reflect or relate to the work claimed to have been done and the contradictor does not have a basis for contending that any of the particular items of work are not properly claimed. Again, I will not make any deduction in relation to that part of the claim whether there is only generic and not specific criticism by the contradictor.
As to items of work performed by the liquidators as liquidators in the creditors’ voluntary liquidation referrable to BDT general activities which is summarised in the Remuneration Report at paragraph 2.1.1.2, Mr Galvin states that all of the categories of work identified are within the Remuneration definition. While he states that the relevant time sheets contain many task descriptions which are not detailed enough for the contradictor to express a view as to the works within the remuneration definition, he is not able to directly impeach any items. I will not make any deduction from the liquidators’ claim for these matters.
In regard to the work performed by the liquidators as liquidators in the creditors’ voluntary liquidation referrable to the registration of the Shelbourne charge in which the first plaintiffs expended time reviewing TVM’s books and records, obtaining legal advice and instructing solicitors in relation to the registration and enforcement of TVM’s fixed and floating charge over the assets of Shelbourne, Mr Galvin concedes that these activities were plainly within the scope of the Remuneration definition. He states, however, once again, that while there is no reason to doubt that the work described in the relevant time sheets falls within the Remuneration definition, it is not possible in many instances for the contradictor to identify particular tasks with categories of work within the definition of Remuneration. Again, I will not make any deduction from this part of the liquidator’s claim in the absence of specific criticism of the liquidators’ material.
Finally, as to the conduct of public examinations by the liquidators, Mr Galvin concedes that this was entirely appropriate and falls within the Remuneration definition. He states that some of the tasks identified in the relevant time sheets do not on their face appear to relate to the public examinations, although this may be simply due to the inaccuracy of the descriptions.
Mr Austin submitted on behalf of the liquidators that the complaints made by the objectors are indiscriminate and set about to conduct an all out assault on the claim for remuneration which was formulaic and general in nature and I am inclined to agree. He submitted that the complaints which are made are not sufficiently specific to permit a direct answer or to enable supplementation by the liquidators. Unlike the situation in Venetian Nominees, he said there is no objection here that challenges whether a particular item of work was in fact done or whether the person alleged to have done the work spent the time alleged in doing it. Mr Austin submitted that if there had been, it would have enabled the liquidators to meet the allegation by calling direct evidence to challenge the correctness of the allegations made.
Mr Austin made reference to annexure A1 which is a spreadsheet produced by the liquidators and annotated by the contradictors’ representatives. I do not intend to descend into a detailed analysis of that document. The items which Mr Austin took me that are contentious are as follows:
(a)On page 1, a charge of $92 for reviewing payment of legal disbursements was said to relate purely to TVM matters, but as Mr Austin said, the evidence is that no legal work was being done for TVM itself; nothing other than statutory compliance activities concerned TVM itself and Mills Oakley’s legal work concerned the “mixed affairs and BDT affairs”. I accept Mr Austin’s submission and allow such sum of $92.
(b)The Will Scholles entry for 25 May 2011 is related to paragraph 10 of Ferguson J’s orders.
(c)On page 2 of the annexure, the items for 3 June and 18 April relate to 500 boxes of documents located at Tyabb. I accept Mr Austin’s submissions that was a “dual purpose” exercise involving the affairs of both TVM and BDT and the amount should be allowed.
Mr Austin said that a number of items on Annexure A1 had been “parked” for later consideration. Those items totalled $68,517. At page 10 of the annexure there is an entry on 2 May for Mr Manvinder Sidhu for $230. Mr Austin pressed this claim on the basis that it is a “dual purpose” task. I accept that to be the position and will allow that claim. In a document described as Annexure B, there is material relating to the conduct of public examinations in the Federal Court. In his outline of submissions, Mr Galvin faintly criticised this item, saying that there was inadequacy as to the description of the task being carried out. In Mr Handberg’s sixth affidavit at [12] and following, I consider that those deficiencies are addressed.
The liquidators say that as to the first objection by Resort Securities and Holiday Concepts, its complaints should be rejected. Mr Austin submitted that there is ample evidence which is summarised in the Remuneration Report as to the work carried out in the voluntary administration period and I agree. As to the other complaints, they are the subject of response by sworn evidence in Mr Handberg’s fourth affidavit at [4 ] to [29] inclusive which I consider satisfactorily address the criticisms made.
The liquidators say that the general criticism of the work done and the resources applied by the liquidators in respect of the Personal Loan Assets does not sit well with the success achieved in significantly reducing the arrears and the loans. In addition, the secured creditors had previously approved the liquidators remuneration at a meeting of creditors. I consider that the reasonableness of this part of the liquidators’ claim is supported by Mr Austin’s observations that the receiver and manager appointed by, among others, Resort Securities, in respect of its security over the personal loan assets, claimed remuneration of $82,041.53 for the five month period 26 August 2011 to 21 December 2011, notwithstanding the fact that the liquidators were the ones actually conducting the realisation of the securities. This is to be compared with the liquidators’ claim of $396,108.50 over a 17 month period from 3 February 2010 to 8 July 2011 in respect of the same category of work. On a monthly analysis, the receivers charged approximately $16,000 a month as compared with the liquidators who charged approximately $23,000 a month and who performed the substantive tasks.
As to Mr Campbell’s objections, the liquidators contend that the complaints should also be rejected. It is said that there is ample evidence, and careful scrutiny of the Remuneration Report makes it clear who performed the work, grade or level of the relevant person, the task and dates, the time spent on the task and the relevant rate according to the level of the person carrying out the task. I agree with that submission. While the material is extraordinarily voluminous, I consider that when one reviews it, even superficially, it is possible to assess in respect of any given entry the identity of the person who performed the work, what position they hold in the liquidators’ organisation, the date that the task was performed, the time spent on it, the rate charged and a good but not perfect understanding by reference to the narrative as to why it was necessary to be performed.
I now turn to the application for statutory criteria prescribed by s 473(10) of the Act. I agree with Mr Austin’s submission that the above analysis results in a conclusion that the liquidators’ material demonstrates that they have made out a prima facie case that their claim was fair and reasonable also adequately addresses the matters mentioned in s 473(10)(a) - (d).
As to the matters mentioned in s 473(10)(e) - (g), being:
(e) the complexity (or otherwise) of the works performed, or likely to be performed, by the liquidator;
(f)the extent (if any) to which the liquidators was, or is likely to be, required to deal with extraordinary issues;
(g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
The evidence filed by the liquidators in my view demonstrates that no deduction should be made from the liquidator’s claim by reason of these matters. The administration and liquidation were at the higher end of complexity and involve considerable responsibilities on the part of the liquidators.
Section 473(10)(h) states:
the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
Again, I consider the materials demonstrate that this was an above-average liquidation in terms of the responsibility and value of property realised and no deduction should be made for this element.
Section 473(10)(i) states:
whether the liquidator was, or is likely to be, required to deal with:
(i) one or more receivers; or
(ii) one or more receivers and managers;
The evidence indicates that the liquidators were required to deal with receivers and indeed performed realisation work on behalf of the secured creditors appointing those receivers and managers.
Section 473(10)(j) states:
the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors;
The evidence indicates to my mind that no deduction should be made when this element is taken into consideration.
Section 473(10)(k)(i) states:
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 liquidator in performing the work;
As I remarked above in respect of my consideration of the Remuneration Report, I regard the amount claimed as being fair and reasonable and I would not make any deduction in this regard.
Mr Galvin, in his oral submissions, conceded he had no specific basis to reduce the so‑called “lodestar” amount. He did accept that the cost benefit for the liquidator to go into chapter and verse on every single item would not be practical.
I will hear counsel on the exact form of order which should be made having regard to the foregoing reasons.
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