In the matter of FW Projects Pty Ltd (in liquidation) (receivers appointed)

[2024] NSWSC 850

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of FW Projects Pty Ltd (in liquidation) (receivers appointed) [2024] NSWSC 850

Hearing dates:

3 July 2024

Date of orders:

3 July 2024

Decision date:

03 July 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders made approving remuneration of receivers and liquidators.

Catchwords:

CORPORATIONS – winding up – liquidators and receivers of trust assets – remuneration – application for approval of remuneration – whether remuneration claimed by provisional liquidators is proportionate to complexities of the matter.

Legislation Cited:

- Corporations Act 2001 (Cth), s 473(10)

- Insolvency Practice Schedule (Corporations), r 60.10

Uniform Civil Procedure Rules 2005 (NSW), r 26.4

Cases Cited:

- Re Idylic Solutions Pty Ltd as Trustee for Super Save Superannuation Fund [2016] 115 ACSR 581; [2016] NSWSC 1292

- Re M and J Super Fund Pty Ltd (in liq) [2021] NSWSC 279

- Re NR Wolli Creek Pty Ltd (recs and mgrs apptd) [2019] NSWSC 313

- Re Wine National Pty Ltd [2016] NSWSC 4

- Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38

Category:

Principal judgment

Parties:

Trent Andrew Devine and Bradd William Morelli in their capacity as joint and several liquidators of FW Projects Pty Ltd (in liquidation) (receivers appointed) and as joint and several receivers over the assets of the Freshwater Development Trust (Plaintiffs)
FW Projects Pty Limited (in liquidation) (receivers appointed) (Defendant)

Representation:

Counsel:
T Di Bello (Solicitor – Plaintiff)

Solicitors:
Nelson McKinnon Lawyers (Plaintiffs)

File Number(s):

2019/139133 (002)

Judgment – EX TEMPORE (Revised 4 July 2024)

Nature of the application

1. By Interlocutory Process filed on 4 June 2024, Messrs Devine and Morelli, in their capacity as joint and several liquidators of FW Projects Pty Ltd (in liq) (“Company”), and as receivers of the assets of the Freshwater Development Trust, seek approval of their remuneration under r 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) (in respect of the receivership) and under r 60.10 of the Insolvency Practice Schedule (Corporations) (“IPPSC”) in respect of the liquidation.

2. The amounts of remuneration claimed are large, in absolute terms, constituting $297,814.98 exclusive of GST in respect of the receivership and $557,261.50 exclusive of GST in respect of the liquidation. As will emerge below, they overlap with an amount of remuneration that was previously approved by creditors in the liquidation and drawn by the liquidators and receivers, in the amount of $320,087. Retrospective approval is sought for payment of that remuneration because creditor approval could not properly extend to approval of the remuneration in the receivership. The consequence of the orders sought is, as Mr Di Bello who appears for the liquidators and receivers makes clear, that the liquidators and receivers would now draw the difference between the amount for which they now seek approval, in the order of $855,000, and the amount of $320,087 which they had previously drawn on the basis of that creditor approval. A notable aspect of the application is that, notwithstanding the size of the remuneration claimed and the fact that the liquidation and the receivership have involved multiple disputes with multiple parties, no creditor or contributory now appears to oppose the amount of the remuneration claimed.

Affidavit evidence

3. The liquidators and receivers read the affidavit dated 13 March 2024 of Mr Morelli who provides a detailed account of the progress of the liquidation and receivership. That detailed account is necessary and appropriate because the complexity of the liquidation and receivership provide the explanation for the very substantial size of the remuneration that is now claimed. I will address the position in respect of the receivership and the liquidation in turn below.

4. The liquidators and receivers also read the affidavit dated 4 June 2024 of Mr Di Bello, which refers to service of the application upon the only shareholder in the Company, and upon the Company's largest creditors. A second affidavit of Mr Di Bello dated 3 July 2024 identifies service of the application upon an additional creditor, who had not been referred to in his earlier affidavit. His second affidavit also annexes company searches for the relevant creditors, to demonstrate that service was effected to the registered offices of those creditors. As I noted above, notwithstanding the size of the amounts claimed by way of remuneration, neither the Company's shareholder nor its largest creditors have appeared to oppose the application.

The remuneration claimed in respect of the receivership

5. Mr Di Bello, in submissions, rightly refers to the principles which apply to applications of this kind. He notes that UCPR r 26.4 provides that a receiver is to be allowed the amount of remuneration that may be fixed by the Court. He also refers to the fact that the orders which here appointed the liquidators as receivers of trust assets contemplated that an application would be made to the Court for approval of their remuneration, which would then be paid from trust assets.

6. Mr Di Bello refers to my summary of the principles applicable in an application for approval of remuneration of a court-appointed receiver in Re Wine National Pty Ltd [2016] NSWSC 4 at [13]ff, and I will adopt, without repeating, the principles noted in that judgment. They include, importantly, the fact that the Court will address matters of principle in an application of this kind, but does not undertake any form of detailed assessment, on a line item basis, of the remuneration claimed. Mr Di Bello also refers to the principle, which I there recognised, that a receiver will ordinarily be entitled to remuneration for the performance both of ordinary duties and extraordinary services which have been sanctioned by the Court, although the receiver must justify the reasonableness of the tasks undertaken. Here, of course, that question is to be addressed in the context of the complexity of the receivership, to which I have referred above. I also proceed on the basis that, as Williams J observed in Re M and J Super Fund Pty Ltd (in liq) [2021] NSWSC 279, there is no material difference between the principles that apply in the determination of a liquidator’s remuneration, to which I refer below, and those which apply in the determination of remuneration as a receiver and manager of assets of the trust.

7. In his affidavit in support of the application, Mr Morelli refers, first, to the work carried out by the receivers, which involved complex issues relating to an agreement for lease in respect of supermarket premises in a building that had been developed for the Company, where there were multiple defects and unfinished works in the supermarket premises at the time the liquidators and receivers were appointed, and issues as to the commerciality of the lease under which the supermarket was to be leased to a third party. Mr Morelli there refers to the steps which were taken to address those complex issues, which involved proceedings relating to an application for leave to disclaim the lease of the supermarket premises and, in parallel, steps taken to reach a resolution with the tenant of the supermarket premises, by which the tenant funded, in the first instance, the repair of defects in the premises, the costs of which was ultimately borne by the receivers on behalf of the trust, and the terms of the lease were renegotiated, inter alia, to increase the rent payable. Mr Morelli also refers to proceedings in the Federal Court of Australia, which have been heard and in which judgment is reserved, relating to a claim for strata management levies in respect of the supermarket premises, which seek to determine whether the receivers, and ultimately the trust, are liable for the payment of those strata levies. That will in turn impact the amount of funds available for distribution to trust creditors.

8. Mr Morelli sets out the categories of work which have been undertaken by the receivers in the receivership, which are extensive, and include a detailed involvement with rectification works in respect of the supermarket premises to bring them to the point at which the lease could proceed, and steps which were subsequently taken to sell the leased premises, in a sale that generated a substantial return to the trust. He also identifies the amount of remuneration which is claimed in respect of those categories of work and refers to the practice management software used by his firm by which time is recorded. I have also been taken by Mr Di Bello, in the course of submissions, to time recording records in respect of the receivership and to the remuneration rates which have been used by the receivers and liquidators in the long period, in excess of four years, for which they have held appointment. Mr Di Bello points out, and I accept, that those rates have increased by a relatively modest amount over that lengthy period, it appears, largely, in more or less annual adjustments.

9. I have also been taken to a summary of the remuneration claimed in respect of the receivership, again organised by several categories, which discloses that there are categories of work in respect of which smaller amounts have been incurred, but, unsurprisingly, there is a much more substantial claim in respect of issues concerning the potential disclaimer of the lease; issues concerning real property, particularly dealing with tenancy issues in respect of the proposed supermarket lease and the realisation of the leased property, upon its sale; and issues involved in respect of the category of real property leases generally. That is not surprising, given the evidence as to the complexities of the issues involved in that respect.

10. Returning to Mr Di Bello’s submissions, he rightly distinguishes between the separate claims for remuneration as receivers of trust assets and the claim for remuneration in respect of the work undertaken by Messrs Devine and Morelli as liquidators which I address below. He refers to the steps which were taken, in the receivership, to address the issues in respect of the lease of the supermarket premises, and to the sale of the supermarket premises and a car park. He also addresses a less substantial issue in the receivership, the sale of another retail store in the development, which had been on foot prior to the appointment of liquidators and receivers and was then completed. He also addresses the proceedings in the Federal Court of Australia in respect of the status of the strata levies, to which I referred above.

11. Mr Di Bello in turn refers to the nature of the time costing records maintained by the receivers, to which I have also referred above, and referred to the tender of those records. He points out, and I accept, that a degree of work has been undertaken by senior staff, including Mr Morelli, but that is not surprising given the complexity of the issues in the receivership. He also points to the fact that there has been delegation to junior staff, in a manner that will average the costs down, albeit I accept that there would be less opportunity to take that course where issues are contentious. Mr Di Bello also recognised the significance of proportionality, and points to the fact that the remuneration claimed in respect of the receivership, in the order of $297,814 excluding GST, is approximately 3% of the total amount realised from the sale of assets of the trust. Plainly, that is not a substantial proportion of those assets, although it is large in absolute terms. As I noted above, the size of the remuneration claimed here is driven more by the complexity of the legal issues surrounding the assets, than by any question of the value of the assets.

The remuneration claimed in the liquidation

12. Mr Di Bello also refers to the principles applicable to the determination of the liquidators' remuneration, which is determined under IPSC s 60-10. He notes that the orders which appointed the liquidators as receivers reserved their ability to apply to the Court for approval of their remuneration in the Company's liquidation, on the basis that it would be paid from the assets of the trust.

13. I bear in mind the principles applicable in respect of an application for approval of a liquidator's remuneration, noted by the Court of Appeal in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 (“Sakr Nominees”), which resolved a then existing controversy as to the manner in which a liquidator's remuneration should be determined and recognised the availability of a claim for liquidation on a time costing basis. The Court of Appeal there observed that a liquidator who seeks such remuneration must establish that the amount claimed is reasonable and recognised the importance of proportionality in relation to a claim for remuneration, although proportionality is to be judged by reference to whether work is necessary, as well as to whether it ultimately delivers any advantage in the particular case. There are, of course, many cases which have now permitted remuneration on a time costing basis, and it will often be the case that time costing remuneration may be appropriate in a complex insolvency administration, of which this matter is a good example.

14. I also have regard to my observations in Re NR Wolli Creek Pty Ltd (recs and mgrs apptd) [2019] NSWSC 313 at [6], where I recognised relevant factors in determining the amount of an insolvency practitioner's remuneration, largely of the kind previously specified in former s 473(10) of the Corporations Act (2001) (Cth), and I have regard to those factors without repeating them. I also there noted the significance of proportionality and recognised the availability of time costing as an appropriate starting point for a calculation of remuneration, although I noted that the reasonableness of time based remuneration would typically be tested by reference to proportionality. As I noted above, the case law has also recognised that the Court's role is not to undertake a line-by-line review of the time narratives of the insolvency practitioner, and that is particularly applicable here, where the insolvency administration, both by liquidation and receivership, has continued for more than four years, involving the complex issues to which I have referred above: Re Idylic Solutions Pty Ltd as Trustee for Super Save Superannuation Fund [2016] 115 ACSR 581; [2016] NSWSC 1292 at [58].

15. As I also noted above, Messrs Devine and Morelli claim a significantly larger remuneration of $557,261.50 in respect of the liquidation, by comparison with the amount claimed in the receivership. In his affidavit, Mr Morelli sets out the work carried out by himself and Mr Devine as liquidators, which reflects a multiplicity of proceedings involving the Company, some commenced by the Company prior to the appointment of the liquidators, others commenced against it, and another which the Company has brought against the builder of the premises to seek to recover costs associated with defects in the premises. Mr Morelli also refers to the fact that, at the point of the appointment of the liquidators, they were faced with a removal application brought by a secured creditor which was the subject of complex proceedings over three days in this Court, in which the application for their removal was refused.

16. Mr Morelli sets out the steps that the liquidators have taken to investigate transactions between the Company and the secured creditor, which extended over a significant period, and refers to an application brought by another creditor for the appointment of a special purpose liquidator to continue those investigations with a view to a potential challenge to the status of the security on which that secured creditor relied. In the event, the application for the appointment of a special purpose liquidator was ultimately resolved by an agreement by which the secured creditor surrendered its security, and allowed the supermarket premises to be sold without its claiming the proceeds under that security, and will ultimately prove in the liquidation as an unsecured creditor, apparently to the advantage of other unsecured creditors in the liquidation. Mr Morelli also outlines the remaining work in the liquidation, which includes the continuance of, or potential settlement of, the building defects proceedings; the possibility that an application will be made to conduct public examinations and, possibly in consequence, further proceedings may ultimately be brought; and, subject to the position in respect of those matters, the adjudication of proofs of debt, dealing with tax issues and the declaration and payment of a dividend to creditors.

17. Mr Morelli sets out the remuneration claimed in respect of relevant categories. Unsurprisingly, the largest of those categories, by significant amounts, relate to dealings with creditors, presumably including the secured creditor, and investigations and legal matters, involving the multiplicity of proceedings to which I have referred above. Mr Di Bello has also taken me to the documentation which is exhibited to Mr Morelli's affidavit, which again include a summary by category of the work done, which involves significant remuneration in respect of investigations and litigation and recovery actions in particular. Mr Di Bello also refers to the detailed timesheets which have been retained by the liquidator and his staff in respect of the work done, although I proceed on the basis that, consistent with the authorities to which I have referred above, the Court need only address those records in a broad brush manner.

18. In submissions, Mr Di Bello points to the multiple proceedings involved in the liquidation, to which I have referred above, and rightly submits that the liquidators have, in some matters, been required to participate in proceedings commenced by others, although they have brought the building defects proceedings in an effort to recover the costs of defective work in the liquidation. There remains a prospect of recovery from the building defects proceedings, although the amount of any such recovery is not known. Mr Di Bello submits, and I accept, that the fact that the liquidators’ work has not resulted in a substantial recovery for the liquidation, although it appears there has been at least one preference recovery, does not impugn their right to remuneration, where the right to remuneration extends to work that was necessary, even if it has ultimately not been of advantage to the liquidation: Sakr Nominees above at [55]-[58]. Here, necessity must again be judged against the complexity of the issues that the liquidators faced.

19. Mr Di Bello again points to the evidence as to the liquidators' time costing methods, and the manner in which the liquidation has been conducted, again with the significant involvement of Mr Morelli, involvement of another senior member of his staff, and assistance by some junior staff.

Determination and orders

20. I have noted above that the amounts claimed by way of remuneration are large, in respect of the liquidation, less but still large in respect of the receivership, and large in total, although the amount to be drawn down will not include the amounts which were previously approved by creditors in the liquidation and drawn down by the liquidators and receivers. I am satisfied, having regard to the matters to which I have referred above and the evidence led in this application, that the amount of the remuneration claimed, both in respect of the receivership and the liquidation, is proportionate and reasonable. I bear in mind that, notwithstanding the litigious environment of this liquidation and receivership, neither the Company’s creditors or the Company’s shareholders have contended to the contrary.

20. For these reasons, I make orders 1, 2, 3 and 5 of the orders sought in the Interlocutory Process filed by the liquidators and receivers on 4 June 2024. I direct the liquidators and receivers, by their solicitors, to bring in short minutes of order to give effect to this judgment within two business days. I make a further order that the exhibits be returned.

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Decision last updated: 16 July 2024