In the matter of F. Basile and Associates Pty Ltd (in liquidation)
[2016] VSC 690
•17 November 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
REDCREST CORPORATIONS LIST
S ECI 2015 0000421
IN THE MATTER of F. BASILE & ASSOCIATES PTY LTD (IN LIQUIDATION)
(ACN 005 866 955)
| F. BASILE & ASSOCIATES PTY LTD (IN LIQUIDATION) (ACN 005 866 955) | First Plaintiff |
| PHILIP NEWMAN IN HIS CAPACITY AS LIQUIDATOR OF F. BASILE & ASSOCIATES PTY LTD (IN LIQUIDATION) (ACN 005 866 955) | Second Plaintiff |
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JUDICIAL REGISTRAR: | Hetyey, JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers – Affidavits and submissions filed by the Plaintiffs and Mr Frank Basile |
DATE OF RULING: | 17 November 2016 |
CASE MAY BE CITED AS: | In the matter of F. Basile & Associates Pty Ltd (in liquidation) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 690 |
CORPORATIONS ACT 2001 (Cth) – winding up – termination or stay of liquidation – Corporations Act 2001 (Cth) section 482(1) – assessment of remuneration of liquidator – factors set out in Corporations Act 2001 (Cth) section 473(10) – treatment of GST – assessment of costs and expenses of liquidator including legal costs – treatment of GST.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Hay | HWL Ebsworth Lawyers |
| For Mr Frank Basile | Comlaw Barristers and Solicitors |
JUDICIAL REGISTRAR:
Introduction
On 6 June 2016, Sifris J determined to stay the winding up of F Basile & Associates Pty Ltd (in liquidation) (“the Company”) until further order. The relevant interlocutory application had been brought under s 482(1) of the Corporations Act 2001 (Cth) (“the Corporations Act”) by Mr Frank Basile, the Company’s sole director (“the Director”), and Frank Basile Nominees Pty Ltd, an entity which had replaced the Company as trustee of the Frank and Sophia Family Trust (“the New Trustee” and “the Trust”, respectively).
As a condition of obtaining the stay, the Director undertook to pay the costs, expenses and remuneration of the Second Plaintiff, Mr Philip Newman, as liquidator of the Company (“the Liquidator”) in an initial sum of $46,158.80 and in such further sum to be agreed or, in default of agreement, to be assessed by an Associate Judge or Judicial Registrar. In other words, according to his Honour’s orders, the referral for assessment was to be given effect in the event the relevant parties were unable to reach agreement on quantum. No such agreement was reached.
Following receipt of the Judge’s referral, I made orders on 27 June 2016 to facilitate the assessment process (“the Orders”). The Orders contemplated that the assessment be conducted “on the papers”, with no need for appearances, and required the Liquidator to file and serve an affidavit to enable the Court to make an informed assessment of whether: (a) the costs and expenses of the Liquidator were reasonable; and (b) the remuneration claimed by the Liquidator was reasonable, having regard to the relevant factors set out in s 473(10) of the Corporations Act. As regards the remuneration claim, the Liquidator was also required to provide a summary table setting out sufficient details of the work and tasks the subject of the claim.
In addition, to ensure the efficiency and fairness of the process, the Director was invited to file and serve any affidavit in opposition and short submissions comprising no more than three pages in length “setting out in summary form, the basis of any objections to the [Liquidator’s] claim for costs, expenses and remuneration” (emphasis added). The Liquidator was then entitled to file short submissions in reply.
On 7 July 2016, the Liquidator filed his material in support of his claim, seeking approval of remuneration in the sum of $93,859.98 (inclusive of GST) and costs and expenses (including legal costs) in the amount of $98,264.77 (inclusive of GST) (a total sum of $192,124.75, inclusive of GST). The material includes a detailed remuneration report which sets out the work or tasks performed, and to be performed, by the Liquidator and his staff, together with the details of the amounts charged for that work.[1]
[1]See exhibit “PN-40” to the affidavit of Philip Newman affirmed on 7 July 2016.
Notwithstanding the stated intention of the Orders, on 28 July 2016, the Director filed and served submissions exceeding the page limit, together with an affidavit deposed by Mr Charles Leonidas, his solicitor, which exhibited a 19 page document styled “Notice of Objection”. The Notice of Objection sets out a series of detailed objections to many of the items of costs, expenses and remuneration claimed by the Liquidator. In a number of instances, the Director calls for the production of file notes of meetings and conversations. In essence, the Director has sought to engage in a process not dissimilar to a taxation of costs, instead of the summary procedure contemplated by the Orders.
A number of the Director’s objections concern substantive matters, such as whether the Liquidator acted “in breach of trust”, “outside authority or power”, “hastily”, “negligently” or in breach of the Civil Procedure Act 2010 (Vic) (“the Civil Procedure Act”). In addition, he asserts that certain items claimed by the Liquidator are outside the scope of the assessment process, unnecessary, excessive, unreasonable, capable of being performed by more junior staff, combine multiple tasks into one time entry or lack supporting evidence. Unfortunately, almost all of the objections taken are highly idiosyncratic in their formulation and language, which makes their consideration more complex. However, generally speaking, the objections fall into at least one of the categories referred to above.
As a consequence of the Director’s approach to the assessment task, on 11 August 2016, the Liquidator filed submissions in reply together with tables responsive to the Director’s Notice of Objection and spanning a further 79 pages.
Notwithstanding the volume of detailed material now relied upon by the relevant parties, I intend to conduct the assessment of the Liquidator’s costs, expenses and remuneration in accordance with the summary procedure envisaged by the Orders. I am of the view that such an approach is consistent with the Court’s obligation under s 8 of the Civil Procedure Act to give effect to the overarching purpose set out in s 7 of that legislation, namely to “facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute” in the assessment process.
Before further considering the material, it is necessary to delineate the history of the proceeding and liquidation more generally. A number of contentious issues raised in this assessment process turn on the significance of certain key events.
Chronology of key events
In setting out a chronology, it is useful to group key events according to particular stages of the liquidation. In doing this, I have had regard to the material filed by the relevant parties in this remuneration assessment along with Sifris J’s reasons for decision[2] and various other documents filed in the proceeding.
[2]In the matter of F Basile & Associates Pty Ltd (in liquidation) [2016] VSC 295 (“F Basile & Associates”).
Stage 1: 13 October 2015 – 22 November 2015
Following a winding up application made by the Deputy Commissioner of Taxation, the Company was placed into liquidation on 13 October 2015 by Court order. As at 19 November 2015, the Deputy Commissioner was owed $100,660.62 (“the ATO debt”).
Immediately prior to the liquidation, the Company had been trustee of the Trust. It did not trade on its own account but was the registered proprietor of two properties located in Brunswick, Victoria (“the Properties”), along with two motor vehicles which were under finance. In addition, the Company had managed a hairdressing business.
On 20 October 2015, the Liquidator met with the Director and his former solicitor, Ms Joy Popovska. During that meeting, it appears the Director first expressed an intention to bring the Company out of liquidation. It also seems that he had approached a real estate agent to discuss the possibility of selling one of the Properties to help achieve this. There is evidence that the Properties were worth in excess of one million dollars. On 23 October 2015, Ms Popovska indicated in an email to the Liquidator that the Director would “borrow against his home…[to] pay out the ATO debt and then seek [the Liquidator’s] assistance to reinstate the [C]ompany”. The Liquidator responded by email on 26 October 2015 explaining that the liquidation would need to continue until the appropriate Court application was made.
On 15 October 2015, the Liquidator requested the Director provide access to the books and records of the Company. A similar request was also made of the Company’s accountants on 27 October 2015. On 11 November 2015, the Company’s accountants wrote to the Liquidator advising that they acted in respect of the Trust and held no records of the Company. The implication appeared to be that documents concerning the Trust were not books and records of the Company. The Liquidator contested this position by email the same day.
Also on 11 November 2015, the Liquidator sent a letter to the Australian Securities and Investment Commission complaining that the Director had not provided access to the Company’s books and records or completed a Report as to Affairs (“RATA”). The Liquidator received an executed RATA from the Director the next day.
In late October and early November 2015, the Liquidator corresponded with the Director in relation to the sale of the Properties. On 6 November 2015, the Liquidator engaged a real estate agent. Discussions took place between the Liquidator and the real estate agent about work the Director apparently believed needed to be carried out on the Properties prior to sale. The Liquidator subsequently insured the Properties and organised various works to be undertaken on them.
On 10 November 2015, the Director’s new solicitors, Comlaw Barristers & Solicitors (“Comlaw”), wrote to the Liquidator informing him that the Company was trustee of the Trust but that the office of trustee had been vacated as a consequence of the Company being placed into liquidation. In addition, the Liquidator was informed that a copy of the relevant trust deed would “shortly be [provided]” and that a replacement trustee would soon be appointed. The Liquidator was also asked to “refrain from continuing to act as [t]rustee of the Trust”.
The Liquidator has deposed that he received a copy of the relevant trust deed and deed of appointment of the New Trustee on 11 November 2015. On that same day, HWL Ebsworth, lawyers for the Liquidator, sent a letter to Comlaw asserting, among other things, that despite the removal of the Company as trustee of the Trust, the Liquidator retained the right be “indemnified out of [T]rust assets for his costs and expenses in identifying, recovering, realising, protecting or distributing [T]rust assets” and was “entitled to hold the assets as against the beneficiaries and as against the new trustee in order to exercise [his] right of indemnity out of the trust assets (emphasis added)”. The letter concluded by putting the Director on notice that unless there was agreement as to the orderly sale of trust assets, the Liquidator would seek a direction from the Court that the Liquidator be permitted to sell those assets.
Further correspondence ensued. By letter dated 13 November 2015, Comlaw requested that the Liquidator not incur costs in seeking to recover, realise, protect or distribute Trust assets because the New Trustee would perform those functions. In this letter Comlaw also indicated that it was not the Director who could consent to the sale of Trust assets but that the decision would need to be made by the New Trustee. HWL Ebsworth responded by letter dated 16 November 2015 and asserted that the Liquidator’s indemnity covered all liabilities of the Company. The request for access to records of the Trust was repeated on the basis that they constituted books and records of the Company.
Stage 2: 23 November 2015 – 16 February 2016
Following this exchange between the respective lawyers, the Liquidator filed an originating process on 23 November 2015 seeking the appointment of a receiver over the Trust assets in order to satisfy his indemnity.
On 11 December 2015, the ATO debt was paid as a result of finance obtained by the Director’s wife and the Liquidator was informed of this on 14 December 2015.
Following the initial return of the matter, the Court made orders on 17 December 2015 for the Director and the New Trustee to file and serve any application to stay or terminate the winding up of the Company by 12 February 2016. This application was ultimately filed on 17 February 2016.
According to the Director, on 9 February 2016, certain financial statements and taxation documents concerning the Trust were provided to the Liquidator and, on 12 February 2016, the Liquidator attended the office of the Company’s accountants to inspect and obtain copies of other financial documents pertaining to the Company and the Trust.
Stage 3: 17 February 2016 – 3 June 2016
Following the filing of the Director’s application to stay or terminate the liquidation on 17 February 2016, the application was adjourned on 19 February 2016 and again on 19 April 2016. Supplementary affidavit material was filed on behalf of the Director and the New Trustee on 4 May 2016. Particular concerns were raised by the Liquidator and articulated in submissions dated 19 May 2016. The Director was ultimately able to satisfy the Court in relation to each of the Liquidator’s concerns.
On 3 June 2016, Sifris J determined the Director’s application on the papers and the relevant orders were entered on 6 June 2016.
Stage 4: 4 June 2016 to date
Since Sifris J made his orders staying the winding up, the Liquidator and the Director have attended to the preparation of the extensive material relied upon in this assessment.
In addition, the Liquidator has made provision for future remuneration, costs and expenses to enable the orderly termination of the liquidation and the presumed return of control of the Company to the Director. The projected amounts are included in the total claim.
Legal principles
Section 473(10) of the Corporations Act sets out the factors which a Court may consider in determining whether the remuneration claimed by a liquidator is reasonable. Those factors are well known and need not be reproduced in full. Whilst many of the factors overlap, they essentially cover matters such as whether the work undertaken by the liquidator was reasonably necessary, the quality and complexity of the work performed and the nature of the liquidation itself.
The process for assessing a liquidator’s claim for remuneration was set out by the Full Court of the Supreme Court of Western Australia in Venetian Nominees Pty Ltd & Ors v Mark Anthony Conlan & Anor[3] and subsequently applied by Dodds-Streeton J in ACN 004 323 184 Pty Ltd v Spark[4] and in other cases such as Barbo Group Pty Ltd t/as Alice Roof Tiles v Investment and Construction Enterprise Pty Ltd.[5] That procedure is summarised below:
[3] (1998) 20 WAR 96.
[4] [2002] VSC 353 at [31].
[5] [2012] VSC 71 (“Barbo Group”) per Gardiner AsJ at [14].
·the process is a summary one in which strict observance of the rules of evidence is not ordinarily required;
·the onus is on the liquidator to establish that the remuneration claimed is fair and reasonable;
·the function of the court is to make an independent determination, based on the material proffered, of whether the remuneration claimed is fair and reasonable;
·if the liquidator establishes a prima facie case on the basis of the submitted material, the court should then consider the validity of any objections;
·ordinarily, the liquidator will provide a statement of account reflecting in the appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly;
·the statement of account should be verified by affidavit;
·more or less particularised statements may be appropriate in different cases and every case depends on its own circumstances; and
·the overriding principle is that sufficient information be provided to the court to enable it to perform its function.
In my view, the Liquidator has established a prima facie entitlement to the claim for remuneration on the basis of the material he has filed. It follows that the objections of the Director should then be considered and the remuneration sought adjusted to the extent necessary. It is appropriate to deal with the Director’s substantive objections first. Consideration will then be given to the Director’s more generic objections, along with some of the factors set out in s 473(10) of the Corporations Act that are most relevant to this assessment.
Substantive objections to remuneration claim
Liquidator alleged to act improperly and in breach of trust
The Director contends that the Liquidator acted improperly and in breach of trust by taking steps to realise trust assets and to disclaim others. The Director says that upon becoming aware that the office of trustee of the Trust was vacated, the Liquidator should have ceased dealing with the assets of the Trust. In failing to do so, the conduct of the Liquidator is described variously in the Director's submissions and Notice of Objection as "unreasonable", "unnecessary, improper and outside the liquidators (sic) authority or power, if not negligent" and "acting without the authority of the Trust or the beneficiaries".
The Director relies on a relatively recent decision of the New South Wales Supreme Court in support of his position: In the matter of Stransfield DIY Wealth Limited (in liquidation).[6] In that case, Brereton J relevantly stated (citations omitted):
“Where the trustee is removed and replaced, the outgoing trustee retains a right of indemnity from the trust assets, secured by an equitable charge over them, for its liabilities incurred by reason of acting as trustee…However, the equitable lien securing the trustee’s right of indemnity and exoneration does not of itself give the former trustee a power of sale; rather, it is a security which is enforceable by the trustee only by judicial sale or appointment of a receiver with a power of sale… If the company has ceased, or ceases, to be trustee of the trust, then the powers of sale given to the trustee under the trust deed (or otherwise given, for example by statute, to a trustee) are no longer available to it.”
[6](2014) 291 FLR 17 20-21 [10] ("Stransfield").
His Honour ultimately concluded in Stransfield that the liquidator of the company in question did not have the power to sell trust property, notwithstanding an equitable charge, because such property was not the property of the company.[7]
[7]Ibid at 25 [30].
A review of the relevant cases reveals there are in fact two competing lines of authorities concerning the power of a liquidator to deal with trust assets in these circumstances. The first line of authority includes Stransfield, and an earlier decision also of Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Service Pty Ltd.[8] Lemery stands for the proposition that a former trustee does not have the right to retain, as against a new trustee, the trust assets as security for an accrued right of indemnity.[9]
[8](2008) 74 NSWLR 550 ("Lemery").
[9]See also the decisions of Barrett J in Hillig v Darkinjung Local Aboriginal Land Council (2006) 205 FLR 450 and Ronori Pty Ltd v ACN 101 071 998 Pty Ltd [2008] NSWSC 246 which confirm a former trustee's beneficial interest in trust property pursuant to a right of indemnity, but which also suggest that such interest is not necessarily in the nature of a possessory security.
The alternative line of authority includes Re Suco Gold Pty Ltd (in liq),[10] a decision of the Full Court of South Australia. In that case, King CJ made the following relevant statements (citations omitted):
“The trustee's lien is an equitable lien which confers on him a charge over the trust property, whether in his possession or not, for the purpose of protecting and enforcing the right of indemnity. It also confers on the trustee a right to possession of the trust property for the purpose of protecting and enforcing the right of indemnity… The right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the cestuis que trust. The rights conferred by the lien passed to the liquidator. They would enable him to obtain and retain possession of the trust property until the right of indemnity has been exercised, and to realize the trust property in the course of exercising it. The lien is ancillary to the right of indemnity. When the right of indemnity has been exercised by recoupment of any amounts which the trustee has paid in connection with the trust and by payment out of the trust fund of any outstanding liabilities, the lien ceases and the balance of the trust property becomes available to a new trustee or the cestuis que trust as the case may be.”[11]
[10](1983) 33 SASR 99 ("Suco Gold").
[11]Ibid at 109.
Whilst Brereton J in Lemery declined to follow this passage from Suco Gold on the basis that it was obiter,[12] that has not been the universal approach. For instance, in Aspostolou as trustee of the Vasilou Family Trust v VA Corporation of Australia Pty Ltd & Ors,[13] Finkelstein J cited Suco Gold in support for the proposition that a liquidator of a former trustee company had the residual power, under statute or trust instrument, to sell trust property in which the company had an equitable interest.[14] Critically, Finkelstein J also held that the retiring trustee was entitled to retain possession of trust property, subject to any court order to the contrary, as against a beneficiary or a new trustee, in order to secure a right of reimbursement.[15] There are other cases which support this approach.[16]
[12]Lemery at 556 [32].
[13](2010) 77 ACSR 84.
[14]Ibid at 94 [48].
[15]Ibid at 94–95 [49]–[50].
[16]See Prior v Simeon [No 2] [2011] WASC 61 per Corboy J, Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 per Gordon J at 5 [18] and Re Neeeat Holdings (in liq) (2013) 299 ALR 744 per Kenny J at 749–750 [22].
Given the state of the authorities is far from clear, I consider that the Liquidator acted reasonably in preparing the Properties for sale, insuring them and otherwise dealing with the Trust assets in the manner that he did.
I have also come to this conclusion for the following further reasons:
(a)Preparations for the sale of the Properties were already underway by the time Comlaw wrote to the Liquidator on 10 November 2015 and requested that he cease dealing with the Trust assets;
(b)The Director had apparently previously contemplated the sale of at least one of the Properties in order to discharge the debts of the Company and had corresponded with the Liquidator in relation to such sale prior to Comlaw’s letter of 10 November;
(c)The Liquidator filed his originating process seeking a direction from the Court on the issue less than two weeks after Comlaw’s letter of 10 November. The volume of work undertaken during that period was not significant in the context of a liquidation which had spanned almost eight months by the time Sifris J made his orders;
(d)In his affidavit material filed in support of the application to stay or terminate the winding up, the Director noted that he had “a number of issues as to the quantum of fees charged in circumstance were (sic) the liquidator was informed that the Company was a trustee company on the 10 November 2015”.[17] However, in his reasons, Sifris J made no adverse comment about the conduct of the Liquidator in dealing with the trust assets prior to the filing of the Liquidator’s originating process on 23 November 2016 and the application by the Director on 17 February 2016. Nor did his Honour consider it necessary to give any specific direction to discount this work in assessing the Liquidator’s remuneration; and
(e)In his later affidavit of 3 May 2016, the Director appeared to accept that “the assets of the Trust must be used to satisfy debts of the Company whilst it was trustee” and that “the assets of the Trust, in particular two apartments in Brunswick, are more than sufficient to pay those liabilities.”[18] This is at odds with his current contention that the Liquidator had no entitlement to deal with the Trust assets.
[17]See paragraph 8 of the affidavit of Frank Basile sworn 16 February 2016.
[18]See paragraphs 7(c) and (d) the affidavit of Frank Basile sworn 3 May 2016.
Accordingly, I do not consider there is any basis to reduce the Liquidator’s claim for remuneration on the basis of this objection.
Liquidator alleged to have instituted proceedings unnecessarily
It is said by the Director that the Liquidator instituted the proceeding in the Court unnecessarily and should be denied his remuneration in respect of that work. The Director’s further submits:
“..in breach of the Civil Procedure Act in relation to the obligation to avoid costs and seek to resolve matters and not institute proceedings unnecessarily, the liquidator instead sought the appointment of himself as receiver and manager to realise assets of the trust to pay ‘debts of the first plaintiff which were incurred in it’s a (sic) capacity as trustee of such trust’ but in truth seek to recover fees he was about to further incur.”
In my view, there is no basis to this objection. I am not convinced that the Liquidator acted precipitously, out of self-interest, or otherwise in breach of the Civil Procedure Act in commencing the proceeding, for the following reasons:
(a)Prior to the Liquidator filing his application on 23 November 2015, HWL Ebsworth, had properly written to Comlaw seeking the Director’s agreement to the orderly sale and realisation of trust assets to discharge the liabilities of the Company. No agreement was forthcoming from either the Director or the New Trustee;
(b)If, on the weight of the authorities, the Liquidator lacked a clear power to deal with the assets of the Trust, he cannot be criticised for seeking his appointment as a receiver of the Trust assets in order to enforce the relevant lien. This is precisely what was contemplated by Brereton J in Stransfield as being the appropriate course available to a Liquidator of a former corporate trustee;[19]
(c)When the Liquidator commenced his application on 23 November 2015, the Company’s unsecured creditor, the Deputy Commissioner, had not yet been paid the ATO debt. As noted in the chronology set out earlier, payment did not occur until 11 December 2015;
(d)At paragraph [8] of Sifris J’s reasons, his Honour observed that the Liquidator was “entitled to indemnity and recourse to the Trust assets to discharge the debts to creditors and the Liquidator’s costs and expenses” and that the “indemnity is secured by an equitable lien over the assets of the trust”. Further, no criticism was made by Sifris J of the conduct of the Liquidator in bringing the application when he did. The Liquidator’s application of 23 November 2015 was simply overtaken by the Director’s application filed on 17 February 2016;
(e)In the event that the Director’s application for a stay or termination of the liquidation had ultimately proved unsuccessful, the Liquidator may have been required to press his application for the appointment of himself as a receiver over the assets of the Trust; and
(f)Had the Liquidator not commenced the proceeding when he did, he may well have been exposed to criticism by a creditor for failing to secure the Trust assets in a timely manner.
[19]Stransfield at 20–21 [10] and 26 [31]. See also Lemery at 560 [46].
General rulings regarding remuneration claim
Set out below are a series of general rulings I have made in relation to the Liquidator’s remuneration claim. These rulings have been made having regard to the principles and statutory provisions referred to earlier and following a review of the material filed in support of the claim. For ease of reference, I have grouped similar or overlapping factors contemplated by s 473(10) under common headings.
Nature of the liquidation
Whilst it is common ground that the liquidation was not particularly complex, I consider that some complexity should be attributed to:
(a)The circumstances which necessitated the Liquidator’s originating process for the appointment of himself as receiver over the assets of the Trust; and
(b)The matters raised in the Director’s application to stay or terminate the winding up.
The liquidation did not occasion any higher levels of risk or responsibility on the part of the Liquidator than would otherwise be the case, however, I do not consider that this is a sufficient reason to reduce any of the amounts claimed.
Nature of the work undertaken
I am also satisfied that, subject to the exceptions detailed further below, the majority of work undertaken by the Liquidator was necessary. Further, many of the tasks carried out by the Liquidator were essentially fundamental in nature and consistent with his duties and obligations.
A sizeable component of the work was also necessitated as a consequence of the Director making his application for a stay or termination of the winding up. By way of illustration, a total of $33,639.00 (excluding GST) has been charged in respect of remuneration for Stage 3 of the liquidation ie: between 17 February 2016 (when the Director filed his application) and 3 June 2016 (when Sifris J made his orders). This represents approximately 39 per cent of the total remuneration claim (excluding GST).
As Gardiner AsJ relevantly noted in Barbo Group:
“The assertion that the tasks were unnecessary, alternatively premature may be made with the luxury of hindsight given that the winding up orders were set aside some weeks later but liquidators appointed to any company, no matter what the circumstances, have fundamental tasks, duties and obligations which are required to be carried out notwithstanding assertions that an application will be made to set aside the winding up order.”[20]
[20]Barbo Group at 9 [28].
Whilst in BarboGroup the relevant winding up orders were set aside one month after they were made, it has already been observed that the orders to stay the winding up were made in this case almost eight months following the commencement of the liquidation and after much work had already been undertaken. Further, had the Director’s application proved unsuccessful, it would be harder to argue that the various tasks performed were unnecessary. Accordingly, I have been careful not to disallow work on the basis of objections made with the luxury of hindsight.
I am of the view that the work undertaken to preserve the Properties was reasonable and appropriate given their value. This included the arrangement for insurance.
I also consider that there is a proper basis to allow for work undertaken in preparing for this assessment process.[21] However, some of that work will need to be discounted as a result of what appears to be an excessive amount of time spent by various persons updating timesheets. There is some force to the Director’s objections that a proper recording of time to begin with may have reduced this amount of work.
[21]See Re Reiter Brothers Exploratory Drilling Pty Ltd; ex parte Andrew Charles Robert Lee (1994) 12 ACLC 430 at 441–442 and Barbo Group at [36].
Further, subject to a few adjustments, on the basis of the material submitted, I am of the view that it is appropriate to allow the component of the remuneration claim associated with anticipated future work until the conclusion of the liquidation. The amount budgeted for this future work is a minor proportion of the total remuneration claim and has likely already been accounted for in preparing the material in support of the assessment and in responding to the Director’s detailed objections.
Applicable rates
In his material, the Liquidator sets out the hourly rates (exclusive of GST) for work undertaken in the liquidation by reference to the various levels of seniority of staff within the Liquidator’s office. The material also sets out the relative level of experience of each grade of staff within the Liquidator’s team who worked on the liquidation.
The Australian Restructuring Insolvency & Turnaround Association (“ARITA”) last published a scale of recommended remuneration rates in 1997.[22] ARITA’s current code of professional practice specifies that the work must be necessary and proper but provides no specific guidance as to the level or rates of fees that might be charged.
[22]ARITA was known as the Insolvency Practitioners Association of Australia when the rates were last published.
However, based on my experience in insolvency law, including having regard to notices of consent to act provided by liquidators in winding up applications, the rates charged for work performed by the Liquidator and his staff appear to reflect current industry practice. I am also of the view that the rates are fair and reasonable given the size and complexity of the liquidation in question.
Inclusion of GST in remuneration claim
In the course of conducting this assessment, I instructed my Associate to email the relevant parties and request that they consider and respond to my preliminary views that:
(a)The GST component of costs and expenses claimed by the Liquidator should not be recoverable on the assumption that the Liquidator would be entitled to an input tax credit in any event; and
(b)On the other hand, the Liquidator should be permitted to include a component for GST in respect of his remuneration claim.
I will deal with the treatment of GST for costs and expenses in a separate part of these reasons. As regards the treatment of GST for the remuneration portion of the Liquidator’s claim, the Liquidator maintains that he is entitled to include a GST component. The Director takes a different view.
By his supplementary submissions dated 20 September 2016, the Director seeks to challenge the Liquidator’s ability to claim GST on his remuneration on a number of bases. Some of the arguments are difficult to follow and go beyond the point the relevant parties were invited to address. However, in summary, it is appears to be variously put on behalf of the Director that:
(a)The Court’s orders contemplated the assessment of the remuneration of the Liquidator himself, whereas the Liquidator’s firm has impermissibly claimed remuneration on his behalf;
(b)The Liquidator has not put on any evidence of the remuneration he has personally received from his own firm by reason of “his personal exertion” in undertaking the external administration of the Company;
(c)The Liquidator has failed to include a tax invoice in the material he relies on in this assessment and therefore no GST is payable on his remuneration;
(d)No GST can be charged in respect of future anticipated work, because no “taxable supply” has yet occurred under the relevant taxation legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“the GST Act”); and
(e)The GST Act “imposes a tax obligation upon the remuneration being invoiced…[i]t is not part of the remuneration of the liquidator.”
I am not persuaded by these arguments. I consider that the Liquidator is entitled to include GST in his remuneration claim because he and his staff have undertaken work and provided services in the liquidation of the Company which ostensibly represent taxable supplies under s 9.5 of the GST Act. The Liquidator is not obliged to demonstrate what salary or wage he has received from his firm by way of personal exertion in undertaking the liquidation. He is seeking remuneration only in his capacity as Liquidator of the Company. Further, it is of no moment that the Liquidator has not rendered a tax invoice in respect of this work. No doubt, this could be attended to once the assessment process has been finalised and his remuneration is fixed. Similarly, just as it is appropriate to deal with the Liquidator’s claim for his anticipated future work as part of this assessment process, it is also appropriate to have regard to the GST on that future work.
For the sake of simplicity, I will assess the remuneration figures exclusive of the GST component and then note the final remuneration figure as allowed to be an amount “plus GST”.[23]
[23]See AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, in which Brereton J allowed liquidators’ remuneration for an amount expressed as being “(plus GST)”.
Allocation of resources
Included in the Liquidator’s material are summary tables which identify each member of staff within the Liquidator’s office who worked on the liquidation, their respective hourly charge-out rate and their total charge as a component of the entire remuneration claim. The summary table reveals that:
·a total of just over 214 hours throughout Stages 1-3 of the liquidation (ie: between 13 October 2015 to 3 June 2016) were worked by 15 people across all levels of seniority;
·of this total number of hours, just over 118 hours (or approximately 55%) were worked by Mr Jerome Miranda, a Senior Accountant who was charged out at $255 per hour (plus GST);
·Mr Miranda was then promoted to a “Senior”, and undertook a further 3.2 hours work in this capacity at a rate of $300 per hour (plus GST);
·Ms Sophie Zapantis, a Senior Manager, worked for just over 29 hours during this same period, representing approximately 14% of the total time recorded. Ms Zapantis was charged out at $445 per hour (plus GST) for most of this time; and
·Mr Newman, as appointed Liquidator, recorded 40.5 hours of time during Stages 1-3, representing approximately 19% of the total time recorded. Mr Newman’s hourly rate was $590 per hour (plus GST) for most of this period.
Based on the information provided, I am generally satisfied that the relevant work has been carried out by a staff member at an appropriate level within the Liquidator’s firm. It appears that more difficult tasks have been undertaken by people at the appropriate charge-out rates for their level of seniority and the less complex tasks have been delegated appropriately. There were, however, some rare examples of work undertaken by senior staff which should have been delegated down the line, for example: the preparation of a fee and costs schedule by Mr Miranda on 16 December 2015 which could have been attended to by a more junior accountant, and the payment of an insurance policy by Mr Newman on 7 March 2016, which should have been done by a secretary. It is appropriate to apply a discount in such cases to reflect more appropriate charge-out rates.
I also consider that it was reasonable for Mr Miranda, as a Senior Accountant and then “Senior”, to be assigned the bulk of tasks and responsibilities. Such an approach facilitated continuity of work, retention of critical knowledge and other potential efficiencies.
However, there are also a number of instances of duplication or “double-handling” of work within the Liquidator’s office which should be accounted for in fixing the remuneration. Examples of duplication include the attendance of both Mr Newman and Mr Miranda at the Court hearings on 17 December 2015 and 6 May 2016.
The material submitted by the Liquidator also reveals a few examples of excessive time being devoted to particular tasks. For example:
·the two hours spent by the Liquidator in discussions with HWL Ebsworth on 30 October 2016;
·the 11.7 hours spent by Mr Miranda on 16 and 17 November 2016 preparing a chronology of events; and
·the time spent by Mr Miranda in late March 2016 and on 30 June 2016 updating time sheet entries in preparation for Court hearing dates and this remuneration claim (as previously noted, some of this work may have been avoided if time records were properly made at first instance).
Non-specific entries
There are a small number of items claimed in respect of which there is an insufficient level of detail to enable me to assess whether they relate to charges that are fair and reasonable. In some rare instances, the level of description used is so generic as to offer little or no assistance or context. For example, on 23 February 2016, a clerk recorded work as a “[f]ile split”, without further detail.
There are also a number of entries where persons have charged for a block of time spent performing a variety of tasks, for example: the 2.6 hours spent by the Liquidator on 6 November 2011 attending to: “[d]iscussions with Nelson Alexander / HWL Ebsworth / Joy Popovska…[r]eview various search results”. In most cases it has been possible, when considering the total time spent, to assess whether or not the various tasks would have reasonably occupied the time claimed. In other instances, this has not been possible and a discount needs to be applied.
Application of rulings to remuneration claimed
Having regard to the above rulings, it is both appropriate and efficient to apply global discounts to the remuneration claimed by the Liquidator in respect of each of the four identifiable stages of the liquidation referred to previously. The global adjustments to be made are set out in the table below.
| Stage of liquidation | Date range | Total remuneration claimed (exclusive of GST) | Percentage deduction | Amount of deduction | Adjusted amount |
| 1 | 13 October 2015 – 22 November 2015 | $28,992.50 | 15% | $4,348.87 | $24,643.63 |
| 2 | 23 November 2015 – 16 February 2016 | $11,358.25 | 4% | $454.33 | $10,903.92 |
| 3 | 17 February 2016 – 3 June 2016 | $33,639.00 | 10% | $3,363.90 | $30,275.10 |
| 4 | 4 June 2016 to date | $11,337.50 | 12% | $1,360.50 | $9,977.00 |
Based on the above figures, I have assessed the total remuneration claim as follows:
Remuneration claimed: $85,327.25 (exclusive of GST)
Less deductions: $9,527.60Remuneration allowed: $75,799.65 (plus GST).
I therefore assess and fix the remuneration of the Liquidator at $75,799.65 (plus GST).
Substantive objection to claim for legal costs
Of the total sum of $98,264.77 (inclusive of GST) claimed in respect of costs and expenses, an amount of $71,280.86 (inclusive of GST) is claimed in relation to the Liquidator’s legal costs. This amount excludes Court fees which are discussed later in these reasons.
It is submitted on behalf of the Director that the legal costs incurred by the Liquidator, including those in respect of the proceeding, are not expenses which should be assessed as part of this process. It is said that Sifris J did not intend by his reasons and orders for those legal costs to be fixed as part of the assessment. Instead, it is submitted that those costs should be taxed by the Costs Court.
The Liquidator, on the other hand, maintains that there is no basis to require a taxation of legal costs and that such costs are expenses properly incurred by the Liquidator and in respect of which he should be indemnified.
For the following reasons, I consider that it is proper for the legal costs incurred by the Liquidator to be assessed as part of this process:
(a)The issue of legal costs was the subject of correspondence between the relevant parties as part of the application for a stay or termination of the winding up. For example, on 22 December 2015, Comlaw requested copies of the accounts rendered to the Liquidator for legal fees. Some material was provided by HWL Ebsworth on 18 January 2016, however, there was complaint as to its adequacy. On 14 April 2016, HWL Ebsworth sent a further letter to Comlaw enclosing a copy of the firm’s timesheets, along with counsel’s fees;
(b)The Liquidator’s legal costs also featured prominently in the material filed by both the Director and the Liquidator in the application for a stay or termination of the liquidation before Sifris J;[24]
(c)There is nothing in Sifris J’s reasons to suggest his Honour did not intend for the assessment process to include the legal costs incurred by the Liquidator (along with other costs and expenses and remuneration). Further, as a condition of staying the liquidation, Sifris J required an undertaking from the Director to make an advanced payment of $46,158.80, which was described as representing part of the Liquidator’s costs and expenses at that time and to be held by the Liquidator pending the outcome of the assessment process.[25] It is reasonable to assume that this sum substantially comprised legal costs;
(d)His Honour’s orders also contemplated an assessment of the Liquidator’s “costs expenses and remuneration” and do not appear to exclude legal costs. Further, unlike previous orders made by Sifris J during the course of the proceeding, his Honour did not make an order reserving costs; and
(e)The Director does not suggest that other costs and expenses incurred by the Liquidator are incapable of being assessed as part of this process. That is only an argument made in respect of legal costs. It is difficult to reconcile these two positions given the language of his Honour’s orders speaks only of “costs expenses and remuneration”.
[24]See paragraphs 9-10 of the affidavit of Frank Basile sworn 16 February 2016, paragraphs 16-17 of the affidavit of Frank Basile sworn 7 April 2016 and paragraph 3 of the affidavit of Danielle Solomon affirmed 6 May 2016.
[25]F Basile & Associates at 4 [18].
As an aside, I note that in the case of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2),[26] Brereton J considered it appropriate to determine Liquidators’ claims for payment of legal costs at the same time as their claims for payment of remuneration and other expenses. Justice Brereton adopted that course to “minimise costs and expense” and to “put to an end any potential objection” about those matters.[27] That may be precisely the approach Sifris J had in mind here.
[26][2014] NSWSC 1270 (“AAA Financial Intelligence”).
[27]Ibid at 9 [16].
Having determined that it is appropriate to assess the legal costs of the Liquidator without the need for a separate taxation, it is necessary to consider whether any of those costs are unreasonable.
In the event that I am wrong about the appropriateness of assessing the Liquidator’s legal costs, his Honour may choose to have regard to my review of those costs in determining how those costs should ultimately be dealt with.
Assessment of legal costs
Extent and scope of legal work undertaken
HWL Ebsworth were retained by the Liquidator prior to the formal institution of proceedings and first engaged with Comlaw on the operation of the Company’s equitable lien over Trust assets and the provision of Company books and records. Work was also undertaken preparing the application for the appointment of the Liquidator as receiver over the assets of the Trust. I have already noted that the institution of proceedings by the Liquidator was necessary in the circumstances. Significant work was then undertaken by HWL Ebsworth and counsel in responding to the Director’s application for a stay or termination. Time was also spent helping to prepare the material relied upon in this assessment. As a threshold issue, I am satisfied that it was appropriate for the Liquidator to have engaged lawyers to assist with all of these aspects of the liquidation.
Costs agreements
On a close review of the material filed by the Liquidator, it was apparent that the Court had not been provided with a copy of any costs agreements in place between HWL Ebsworth and the Liquidator. Accordingly, on 18 October 2016, I instructed my Associate to call for any such agreements. Two costs agreements were produced bearing the dates of 5 November 2015 and 8 December 2015, respectively (together, “the Costs Agreements”).
The Director then sought to make further submissions on the effect of the Costs Agreements. Leave was subsequently given for short submissions to be filed and served by the Director and for the Liquidator to file and serve submissions in reply.
In his further submissions dated 1 November 2016, the Director repeats his objection to the assessment of legal costs as part of this assessment process. The Director also contends that if legal costs are to be assessed at this stage, they should not be assessed on an indemnity basis but on a standard basis and pursuant to rule 63.30 of the Supreme Court (General Civil Procedure) Rules 2015. I have already explained why legal costs should now be assessed as part of the total costs and expenses incurred by the Liquidator. Given that finding, it is appropriate to consider whether any of the legal costs incurred are unreasonable or unnecessary ie: assessed on an indemnity basis and not on any other basis.
In addition, the Director raises a series of further arguments concerning the Liquidator’s legal costs. It is unnecessary to recite those arguments in full. For the following reasons, those arguments are, in my respectful opinion, overly technical in nature and unpersuasive:
(a)The argument that the Costs Agreements are not between HWL Ebsworth and the Liquidator but with the Liquidator’s firm appears to raise an artificial distinction. It is clear from the affidavit material filed by the Liquidator, including the tax invoice issued by HWL Ebsworth, that the Liquidator has incurred and acknowledged an obligation with respect to the legal costs charged by HWL Ebsworth in connection with the liquidation. Whether the Costs Agreements bear the Liquidator’s name or the name of his firm is immaterial. The costs solely relate to his work as Liquidator of the Company.
(b)There is no reason to disallow barrister fees on the basis that no separate costs agreement with counsel has been produced or because no account has apparently been rendered by HWL Ebsworth to the Liquidator in respect of those fees. The Liquidator submits that he instructed the firm to engage counsel on his behalf. I am satisfied that no separate costs agreement was required because the Liquidator was a “commercial or government client” in accordance with s 170 of the Legal Profession Uniform Law (“Uniform Law”) .[28] Further, particulars of the work undertaken by counsel have been clearly identified in the affidavit material filed and the Liquidator has deposed to having incurred these costs.
(c)It is unclear how the Director would have any standing under the Uniform Law to make application for the assessment of the Liquidator’s legal costs. In particular, it is difficult to see how he would be a “third party payer” within the meaning of s 171 of the Uniform Law. The costs are claimed as costs and expenses of the liquidation in respect of which the Liquidator had sought to be indemnified out of the assets of the Trust. But for the undertaking given to the Court on 6 June 2016 as a condition of the stay, the Director had no prior obligation to pay the Liquidator’s costs and expenses. Further, for the Director to now be permitted to invoke or reserve purported rights under the Uniform Law would seem to undermine and run counter to the operation of Sifris J’s orders.
[28]The Uniform Law is contained in Schedule 1 of the Legal Profession Uniform Law Application Act 2014 (Vic).
Review of legal costs
Having reviewed the HWL Ebsworth timesheets exhibited to the affidavit of Mr Jonathan Kramersh sworn on 7 July 2016, I am largely satisfied that the amounts charged are not unreasonable and represent work that was necessary given the history and features of this particular liquidation. The majority of the work was performed by Ms Daniele Solomon who was a Senior Associate and then promoted to Special Counsel. In my view, there was an appropriate level of delegation by Mr Jonathan Kramersh as supervising partner.
I am also satisfied that the amount claimed in respect of future legal costs (for both solicitors and counsel) is reasonable, especially given the extensive nature of the material filed by the Director in this assessment process and the need for material in response.
There are, however, a few instances of charges which, on their face appear to be excessive. They include multiple attendances on the Liquidator and his staff in a short space of time (for example, three telephone communications between lawyers at HWL Ebsworth and the Liquidator on 10 November 2015) and too long spent on other tasks (for example, the time spent by Ms Solomon preparing submissions between 16 May 2016 and 19 May 2016).
Having regard to the above, I am prepared to allow a global amount of $45,100 (exclusive of the question of GST) in respect of the fees charged and to be charged by HWL Ebsworth. The treatment of GST on those legal fees is dealt with further below.
Subject to the question of GST, I can see no basis to reduce the fees charged by Mr Sam Hay of counsel. The time spent by counsel in connection with this proceeding was both efficient and productive in refining the issues to be considered by the Court.
Treatment of GST
As previously mentioned, I have already expressed to the parties my preliminary view that the GST component of the costs and expenses claimed by the Liquidator ought not be recoverable on the assumption that the Liquidator would be entitled to an input tax credit.
Clear support for that approach can be found in the case of Merringtons Pty Ltd v Luxottica Retail Pty Ltd & Anor.[29] In that case, Master Wood (as he then was) considered the application of the GST Act to a taxation of costs. The Master cogently explained that if a party “is registered for GST purposes and is able to recover the GST component of any disbursement by way of an input tax credit, then to allow the GST component to remain as part of the disbursement would be to allow ‘double dipping’”.[30] Master Wood went on to hold that where a party is able to claim an input tax credit, the GST component of any disbursements ought to be deducted by the Taxing Master prior to the consideration of the appropriateness or otherwise of the disbursement.[31] The reasoning in Merringtons has since been applied more broadly.[32]
[29][2006] VSC 525 (“Merringtons”).
[30]Ibid at 10 [34].
[31]Ibid at 12–13 [41].
[32]See, for example, Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd (2009) 262 ALR 691and Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq) [2012] VSC 358, cases which applied this reasoning in the context of the assessment of damages.
The Director agrees with the approach in Merringtons in relation to the treatment of costs and expenses generally but nevertheless resists the assessment of legal costs as part of this process. I have already explained why the legal costs should now be assessed. The Liquidator’s position on the GST treatment of costs and expenses is also somewhat qualified. In his submissions dated 23 September 2016, the Liquidator relevantly states as follows:
“[the Liquidator] is willing to accept that the GST component of the disbursements he has claimed may not be recoverable only on the basis that the Court recognises that he is entitled to an input tax credit in relation to the GST component and that the input tax credit can be claimed regardless of whether the Court grants orders terminating the liquidation of the [Company]”.
Unfortunately, I am not in a position to give the Liquidator the assurances he seeks. I note, however, that the Liquidator has not suggested that he is unable to claim input tax credits on the GST component of disbursements he ordinarily incurs in performing his professional work or that he is not registered for GST purposes. Further, if the Liquidator has some concern about the effect of any eventual order of the Court terminating the winding up of the Company or his capacity to claim input tax credits, he may seek professional accounting advice or bring that matter to the attention of the Judge at the appropriate time.
For the sake of completeness, I note that Brereton J in AAA Financial Intelligence allowed the liquidators’ legal costs for a GST-inclusive sum. However, in that case, there was no contradictor and the liquidators did not appear to address the question of whether they would be entitled to claim an input tax credit. Nor was that issue given any specific attention by the Court. I am therefore prepared to proceed on the basis that the reasoning in Merringtons has application to this case and the GST component of the Liquidator’s costs and expenses, including for legal costs, should be deducted.
Total legal costs allowed
In the event, the Liquidator should be permitted to recover a total sum of $61,885 in respect of the legal costs incurred by him in the liquidation. To be clear, I have not allowed any GST component in respect of this amount.
Assessment of remaining costs and expenses
Many of the remaining costs and expenses of the liquidation include those associated with dealing with the Properties and preparing for their sale. Given my earlier ruling on the reasonableness of the Liquidator in dealing with the Properties in the manner he did, the objections to these items cannot be sustained.
Despite objection taken by the Director, I consider that the Liquidator’s obligation to pay Court fees when he filed the originating process on 23 November 2016 is self-evident. He has deposed having incurred that legal disbursement[33] and there is no basis to disallow it.
[33]See also the HWL Ebsworth invoice dated 25 November 2015 which was annexed to the Liquidator’s supplementary submissions filed on 9 November 2016.
Moreover, subject to one minor concern, I do not consider these disbursements to be excessive. However, I agree with the Director that given the volume of photocopying undertaken within the Liquidator’s office, a lesser rate per page would have been appropriate.
In accordance with my earlier reasoning, it is also necessary that the GST components for these remaining items be removed. The exception here is in respect of the Court fees, which do not attract GST.
The Liquidator should be permitted to recover $24,140.00 in respect of the remaining costs and expenses.
Conclusion
As a consequence of the above reasons and calculations, the remuneration of the Liquidator is assessed at $75,799.65 (plus GST) and his costs and expenses (including legal costs) are fixed at $86,025.00 (no GST allowed).
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