In the matter of Hunter Valley Dental Surgery Pty Ltd (in liquidation)

[2017] NSWSC 691

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Hunter Valley Dental Surgery Pty Ltd (in liquidation) [2017] NSWSC 691
Hearing dates:	26 May 2017
Decision date:	02 June 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court stands the matter over and would allow the liquidator to seek leave to lead further evidence.
Catchwords:	CORPORATIONS — Winding up — Liquidators – Application by liquidator under Corporations Act 2001 (Cth) s 473(3)(b)(ii) to determine remuneration – whether amount of remuneration claimed is reasonable – whether evidence justifies amount of remuneration claimed
Legislation Cited:	- Corporations Act 2001 (Cth), ss 473, 482, 1581 - Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth) - Corporations Regulations 2001 (Cth), reg 10.25.02(3)(h) - Evidence Act 1995 (NSW), s 136 - Insolvency Law Reform Act 2016 (Cth)
Cases Cited:	- Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 - Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292; (2016) 115 ACSR 581 - Re Sakr Nominees Pty Ltd [2017] NSWSC 668 - Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38
Category:	Procedural and other rulings
Parties:	David John Kerr (in his capacity as Official Liquidator of Hunter Valley Dental Surgery Pty Ltd (in liquidation)) (Applicant) Alexandra Morphett (First Respondent) John Harvey (Second Respondent)
Representation:	Counsel: S Balafoutis (Applicant) H N Newton (Respondents)   Solicitors: Kemp Strang (Applicant) Deutsch Miller (Respondents)
File Number(s):	2015/289831

Judgment

1. By Originating Process filed on 23 September 2016 in proceeding number 2016/285877, the Applicant, Ms Alexandra Morphett, applies for an order terminating the winding up of Hunter Valley Dental Surgery Pty Ltd (in liq) (“Company”) under s 482 of the Corporations Act 2001 (Cth). Ms Morphett’s application to terminate the winding up did not proceed at the hearing on 26 May 2017 and has been further adjourned.

2. By Amended Interlocutory Process filed in the winding up proceedings, number 2015/289831, the court-appointed liquidator of the Company, Mr David Kerr, seeks orders under s 473(3)(b)(ii) of the Corporations Act that his remuneration as liquidator of the Company for the 14 month period from 26 November 2015 to 31 January 2017 be approved in the sum of $303,177.90 plus GST, and that his remuneration for the period 1 February 2017 to 5 May 2017 be approved in the sum of $52,868.50 plus GST. The total remuneration claimed by Mr Kerr is therefore $356,046.40 exclusive of GST. Although Mr Kerr initially also sought approval of disbursements, it is now common ground that the Court does not approve a liquidator’s disbursements in an application of this kind. Mr Kerr’s application for approval of his remuneration was heard on 26 May 2017.

Factual background and affidavit evidence

3. Mr Kerr relies on five affidavits sworn in support of the application for remuneration, namely his affidavit sworn 12 October 2016, his three affidavits sworn 20 March 2017, his fifth affidavit sworn 15 May 2017, and three exhibits to those affidavits. He also relies on two affidavits of his solicitor, Mr Cussen, dated 24 March 2017 in the winding up proceedings and in the termination proceedings and a third affidavit of Mr Cussen dated 26 May 2017. I will refer further to those affidavits below. Ms Morphett has sworn several affidavits in the application to terminate the winding up but these were not read in this application. Mr Newton, who appears for Ms Morphett and her husband, Mr Harvey, notes that they have not filed any evidence in opposition to the liquidator’s remuneration application and indicates that their position is they are content for the approval application to be determined by the Court. Mr Newton put submissions that were, in substance, in opposition to that application.

4. By way of background, the Company operates a dental practice at Cessnock, at which Mr Harvey provides dental services, another dentist works from time to time, and a dental hygienist and three casual employees also work. The Company was wound up on the application of the Deputy Commissioner of Taxation and Mr Kerr was appointed as its liquidator on 26 November 2015. Shortly after the winding up order was made, Mr Kerr was informed that Ms Morphett would bring an application to terminate the winding up, although there was a long delay in Ms Morphett bringing that application and further delays in progressing it. It appears that Ms Morphett and Mr Harvey also raised the possibility that they would purchase the Company’s business, although that has not proceeded. Mr Kerr permitted Mr Harvey to continue to use the dental equipment situated in the Company’s premises and trade from that property and, initially, the Company received the income from the practice, and remitted 40% of it to Mr Harvey in payment for his services.

5. The Company owns the property from which that dental practice is operated and also owns a property at Bar Point on the Hawkesbury River. The Cessnock property and the Bar Point property have together been valued at $995,000. The Cessnock property and the Bar Point property are subject to security granted in favour of Westpac Banking Corporation (“Westpac”) to secure a debt of over $2 million, which it appears is also owed by Ms Morphett and Mr Harvey and is also secured by other assets. Westpac has not submitted a proof of debt in the winding up. The Company also owns equipment used in the dental surgery, furnishings and two boats, which Mr Kerr has assessed as having no value. The Company also owns shares in The Oak Hotel Cessnock Pty Ltd (“TOHC”) which trades as the Royal Oak Hotel Cessnock. Mr Kerr’s evidence is that that business has incurred significant trading losses and he also assesses the Company’s shares in TOHC as having no value. The Company is also owed a substantial amount, as an unsecured loan by TOHC but Mr Kerr has also assessed the value of that loan at zero.

6. The liabilities of the Company include an amount owed to the Deputy Commissioner of Taxation, although Ms Morphett has paid that amount into the trust account of her solicitors in order to advance the application to terminate the winding up. Mr Harvey also claims that the Company owes him almost $800,000, although the liquidator does not presently accept that claim, and there are several claims by other creditors, the status of which may be in dispute in the application to terminate the winding up. The Company is also involved in litigation with a third party, Rivergate Marina & Shipyard Pty Ltd, which claimed unpaid mooring fees for a yacht owned by the Company against the Company and against Ms Morphett and Mr Harvey. Ms Morphett and Mr Harvey brought a cross-claim in those proceedings for damages as a result of the sinking of the vessel at Rivergate’s shipyard. Those proceedings were heard in the Queensland District Court in January 2017 and it appears that judgment is reserved in the proceedings.

7. Turning now to the progress of the winding up, from early March 2016, Ms Morphett and Mr Harvey took steps, with the liquidator’s consent, to seek to consolidate the Company and TOHC for income tax purposes and, after a long delay and a reversal of position by the Australian Taxation Office, that consolidation was permitted and brought about a substantial reduction in the Company’s tax liability.

8. Mr Kerr provided a first report to creditors in May 2016 which contained a detailed account of steps that had been taken to that point, which included trading the business, progressing the possible sale of the dental practice and Cessnock property as a going concern, progressing the potential sale of the Bar Point property, investigating the recoverability of debts owing to the Company and investigating for voidable transactions, insolvent trading or breach of director’s duties. Mr Kerr’s remuneration report then sought approval of remuneration of $129,685.50 for the period until 30 April 2016. The liquidator also indicated an intent to refrain from undertaking certain further activities in the winding up until 20 May 2016 on the basis that an application to terminate the winding up was filed by that date. That did not occur. At a meeting of creditors on 3 June 2016, a resolution for approval of Mr Kerr’s remuneration was defeated, with two creditors for a total of $616,043 voting in favour of the resolution but Mr Harvey (whose claim for a debt of $778,802 was admitted for voting purposes only) voting against the resolution. Mr Kerr did not exercise a casting vote in favour of the resolution and declared that it was not carried. He subsequently provided further information to Mr Harvey as to the remuneration claimed and foreshadowed an application to the Court for approval of that remuneration.

9. It appears that, in July 2016, Mr Harvey ceased to follow an earlier procedure by which income earned by the dental surgery was paid into the Company’s bank account and 40% of that income was then remitted to Mr Harvey, and did not thereafter remit that income to the Company and also did not pay rent for the use of the dental surgery. Mr Kerr refers to having sent invoices totalling $319,657.46 over that period, which were unpaid, but he did not commence proceedings to recover that amount by reason of the “pending” application to terminate the winding up. These matters have plainly reduced the assets available to the Company, but they do not explain the level of remuneration claimed in the liquidation where no substantive action was taken to recover the unpaid amounts.

10. Ms Morphett finally filed an Originating Process seeking to terminate the winding up under s 482 of the Corporations Act on 23 September 2016. Mr Kerr subsequently advised Ms Morphett that aspects of her evidence led in support of that application were disputed and that he was not satisfied that there was sufficient evidence of solvency to support a termination of the winding up.

11. By his second report to creditors in October 2016, Mr Kerr noted that he had not taken steps to realise the Company’s assets where an order terminating the winding up might be made and noted his assessment that the Company’s liabilities exceed its assets by $821,014, a matter which, I interpolate, can hardly have given comfort as to the then prospects of an application to terminate the winding up. Mr Kerr also noted that invoices issued to Mr Harvey for rent for the premises had not been met and provided a remuneration report claiming remuneration to 30 September 2016 of $248,475, reduced from the actual remuneration incurred of $285,968.50.

12. Directions were subsequently given in the application to terminate the winding up for Ms Morphett to file further evidence, which were not complied with. On 12 October 2016, the liquidator filed an affidavit in the proceedings indicating that he could not support the termination of the winding up unless Ms Morphett or Mr Harvey paid amounts owing to the Company’s creditors, or entered into a satisfactory arrangement with them; converted Mr Harvey’s claim against the Company to equity; and paid his remuneration and assessed the deficiency of the Company’s assets as against its liabilities as almost $1 million.

13. By a third report to creditors dated 3 February 2017, Mr Kerr noted that Mr Harvey continued not to pay rental for the Cessnock premises and associated equipment, and provided a remuneration report indicating that the amount of his remuneration claimed until 31 January 2017 had now increased to $303,177.90, after a reduction of about $44,000, and seeking future remuneration fixed and capped at $100,000 for the period to 31 January 2018. At a creditors’ meeting on 21 February 2017, five creditors with a total value of $241,280 voted in favour of the resolution, one creditor abstained, and Mr Harvey (whose proof of debt of $778,802 had been admitted and marked as objected to) voted against the resolution. Mr Kerr again did not exercise his casting vote in favour of approval of his resolution and, on 23 February 2017, he advised the creditors that he intended to seek the Court’s approval of his remuneration. Mr Kerr filed an interlocutory application, seeking approval of his remuneration to January 2017, in the winding up proceedings on 17 March 2017.

The affidavit evidence

14. By his first affidavit dated 12 October 2016, filed in the proceedings to terminate the winding up, Mr Kerr set out the background to the Company’s business, to which I have referred above, and set out his then position in respect of the termination of the winding up. The affidavit otherwise exhibited voluminous correspondence between the parties and reproduced a chronology of events set out in Mr Kerr’s first report to creditors. That affidavit also set out an updated summary of the Company’s financial position, showing a deficiency of assets to liabilities in excess of $820,000, on the basis of estimated realisable value as distinct from the book value of those assets. That affidavit also responded to matters raised in Ms Morphett’s affidavit dated 21 September 2016 in support of the application to terminate the winding up and took issue with aspects of that evidence.

15. Mr Kerr’s first of three affidavits dated 20 March 2017 related to an application for directions concerning the winding up of the Company and again exhibited a substantial volume of correspondence, containing additional correspondence to that exhibited to his affidavit of 12 October 2016. Paragraphs 13–63 of that affidavit were admitted in this application with a limiting order under s 136 of the Evidence Act 1995 (NSW), as evidence of steps taken by the liquidator in the liquidation and not as proof of the asserted matters. That evidence relates to potential claims for breach of duty against Mr Harvey and to matters relating to the solvency or otherwise of TOHC. That affidavit also dealt with matters relating to service of the application for remuneration.

16. Mr Kerr’s second affidavit dated 20 March 2017 again related to the application to terminate the winding up and indicated that Mr Kerr could not consent to that application unless certain steps were taken by Ms Morphett. That affidavit also annexed voluminous correspondence and responded to matters raised in a second affidavit of Ms Morphett. That affidavit also addressed matters relating to the position of the Australian Taxation Office, Westpac and the third party involved in proceedings in the District Court of Queensland, Rivergate, and identified potential claims of the Company against Mr Harvey. That affidavit also addressed the circumstances in which a resolution for the liquidator’s remuneration was put at the creditors’ meeting on 3 June 2016, but not passed over Mr Harvey’s opposition.

17. A further affidavit of Mr Kerr dated 20 March 2017 dealing with the remuneration application exhibited the same documents as were exhibited to Mr Kerr’s second affidavit dated 20 March 2017 and an additional exhibit dealing with remuneration, which included records of time costs from November 2015 to January 2017, time sheet recording records and a spreadsheet adjusting time recorded by employee and by activity. Mr Kerr again set out the chronology of events in that affidavit and referred to circulars to creditors that had been sent during the period of the winding up and again referred to the delays in progressing the winding up application and to various complexities in the liquidation. That affidavit set out a significant number of tasks that had been undertaken in the liquidation, and Mr Kerr expressed the view that “[d]ealing with these matters in a professional, timely and impartial manner has resulted in the quantum of remuneration now claimed”. Mr Kerr identified some 33 categories of activities, including statutory tasks and investigations required to be undertaken during the 16 month period of the winding up, although he did not seek to establish the time that had been spent on those particular activities to allow an assessment of its proportionality. That affidavit also referred to the circumstances in which Mr Kerr’s remuneration had not been approved by creditors and to the systems maintained by his firm for time recording.

18. By a further affidavit dated 15 May 2017, also read on the application, Mr Kerr set out his position in respect of aspects of the application to terminate the winding up and as to aspects of the Company’s financial position. That affidavit also addressed the application for approval of Mr Kerr’s remuneration, including a claim for future remuneration which is not pressed in this application where Ms Morphett’s application to terminate the winding up has again been deferred.

19. By an affidavit dated 24 March 2017, the solicitor acting for Mr Kerr, Mr Cussen, dealt with issues relating to the conduct of the winding up application and questions of service. A second affidavit of Mr Cussen of the same date also dealt with service. A further affidavit of Mr Cussen dated 26 May 2017 dealt with the position of several parties in relation to the application to terminate the winding up, which is not presently pressed, the liquidator’s claim for remuneration and the quantum of the liquidator’s remuneration. Mr Cussen gave evidence, on information and belief from Mr Kerr, that Mr Kerr believed the rates he and his staff charged were the standard chargeable rates of his firm and were generally comparable to practices of similar size and with liquidators and staff of the same seniority in competing firms, and Mr Cussen, who is an experienced solicitor in insolvency matters, supported Mr Kerr’s evidence by reference to his experience.

The applicable legal principles

20. Mr Kerr brings this application under s 473(3)(b)(ii) of the Corporations Act, which was repealed and replaced by the Insolvency Law Reform Act 2016 (Cth) with effect from 1 March 2017. Mr Balafoutis, who appears for the liquidator, refers to the transitional provision in s 1581 of the Corporations Act as allowing reliance on that section with respect to a liquidator who was appointed before the commencement day. It is not necessary to rely on that provision, because the operation of s 473 is continued until 1 September 2017 by reg 10.25.02(3)(h) of the Corporations Regulations 2001 (Cth), introduced by the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth).

21. An application to the Court under s 473(3)(b)(ii) may properly be brought by Mr Kerr, because a resolution approving his remuneration was not passed at the relevant creditors’ meetings, when Mr Harvey voted against approval of that resolution and Mr Kerr did not exercise his casting vote in favour of the resolution. Mr Balafoutis refers to the matters identified in s 473(10) of the Corporations Act 2001 in respect of such an application and relies on the observations of the Court of Appeal in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 as to the scope of that provision and the subsequent summary of the relevant principles by Gleeson JA in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540. Mr Newton, who appears for Ms Morphett and Mr Harvey in respect of the remuneration application, accepts that the relevant principles are as stated in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above and Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above.

22. In Re Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23] – [25], I summarised the applicable principles, as they stand following the Court of Appeal’s decision, as follows:

“A liquidator is entitled to reasonable remuneration for his or her services and the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable and, in determining a liquidator’s reasonable remuneration, the Court will have regard to the factors specified in s 473(10) of the Corporations Act, to which I refer further below. The Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; the liquidator must lead evidence in sufficient detail that the Court can determine that question; and the Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102–103. Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the “value” of a liquidator’s work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors: Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 at [64]; Macks v Maka [2015] SASC 200; (2015) 110 ACSR 279 at [52]–[66]; Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 at [70]–[71]; Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545. ...

In Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above, Bathurst CJ (with whom the other members of the Court of Appeal agreed) observed (at [54]) that the onus is on a liquidator to establish that the remuneration claimed is reasonable, and it is the Court’s function to determine that remuneration by considering the material provided to it and bringing an independent mind to bear on the relevant issues; that many of the factors specified in s 473(10) of the Corporations Act have the concept of proportionality as an underlying theme, and that concept is an important consideration in determining whether remuneration is reasonable, so that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed (at [55]); and that the fact that work does not increase the funds available for distribution to creditors or contributories does not mean that the liquidator is not entitled to be remunerated for it, where it was reasonable to carry out that work and the amount charged is reasonable (at [57]–[58]). The Court of Appeal’s decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above does not prefer any of the particular approaches to remuneration to which I have referred above to any other of those approaches and, in particular, does not require a time-based approach to remuneration to be adopted in preference to percentage-based approach to remuneration. Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; in part, on the view taken by any persons who oppose the remuneration application; and, in part, the view taken by the Court.”

23. In Re Sakr Nominees Pty Ltd above at [18], I also pointed to the need for a liquidator’s evidence in support of an application of this kind to provide sufficient justification of the extent of the work that had been required, why that work was undertaken and why it was proportionate to the complexity or importance of the issues to be addressed. I also there observed that the tender of work in progress schedules was not necessarily sufficient to provide such an explanation and that:

“it is not the Court’s role to review such schedules to seek to deduce which tasks relate to which matters, and why they were appropriately undertaken, where that matter was not addressed by adequate evidence led by the liquidator who seeks approval of his remuneration.”

24. To put that proposition another way, the liquidator in an application of this kind bears the onus of establishing that the amount of remuneration he or she seeks is fair and reasonable, and proportionate to the needs of the liquidation, having regard to the factors specified in s 473(10) of the Corporations Act. That will likely require more than, on the one hand, a bare reference to the amount of time costs recorded in broad categories such as “assets”, “creditors”, “employees”, “trade on”, “investigation” and “administration” in the liquidator’s affidavit. It will also often require more than a tender of the liquidator’s work in progress records, which will typically disclose what work was done by relevant persons within broad categories and how long it took, but not why it needed to be done, or why it was done by those particular persons or why the work directed to a particular issue took a substantial time. It will often require more than simply establishing that a substantial amount of work was done; a substantial amount of time was recorded by the liquidator and some or many of his or her staff in doing that work; and then submitting, in effect, that the particular amount claimed must be reasonable because much work was done and much time was spent doing it, without any real explanation of the necessity of the work or why it took the time spent on it.

25. In seeking to establish that remuneration was fair and reasonable and proportionate, particularly where (as here) the claim is large in amount and attributable to work done by many staff members, a liquidator will often need to provide the Court with evidence, for example, that indicates what were the matters, issues or controversies that required substantial work in the liquidation, not only by reference to general categories such as “assets” or “investigation”, but also by reference to what needed to be done in respect of the properties to be dealt with or the matters to be investigated, why that work was most efficiently done by staff members of the seniority involved in doing it, and why that work was particularly time-consuming if that was the case. That evidence may not need to be lengthy, although it may be longer if a liquidation is itself complex or lengthy or the amounts claimed are large. That evidence will, however, need to provide a sufficient evidentiary basis to address the fundamental questions that the Court must address in an application of this kind, namely what makes up the liquidator’s claim for remuneration; what work needed to be done in the liquidation; what the liquidator and his or her staff in fact did in the liquidation; why the remuneration claimed for the work that was in fact done was reasonable and proportionate; and any matters relevant to the factors identified by s 473(10) of the Corporations Act.

Application of the relevant principles

26. I turn now to the factors specified in s 473(10) of the Corporations Act, the importance of which was emphasised by the Court of Appeal in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above. Those factors include whether a liquidator’s claimed remuneration is reasonable, taking into account all or any of specified matters, including, first, the extent to which the work performed or likely to be performed by the liquidator was reasonably necessary; the period during which the work was, or is likely to be, performed; and the quality and complexity of the work.

27. I will address the question of whether the work done was reasonably necessary in dealing with the quantum of the costs claimed by Mr Kerr below. As to the period in which the work was performed, Mr Balafoutis submits that the length and cost of the liquidation was necessitated by Ms Morphett’s and Mr Harvey’s actions, including the foreshadowed application to terminate the winding up. Mr Balafoutis submits that a termination of the winding up would have been in the interests of the Company’s creditors, where unsecured creditors would only have received a fraction of their claims if Mr Kerr had realised the Company’s assets. I accept that proposition, although it obviously depends on whether the evidence led by Ms Morphett will ultimately be sufficient to support a termination of the winding up. Mr Balafoutis also points out that Mr Kerr traded the dental practice for about eight months, from November 2015 until July 2016, although the day to day dental practice was in Mr Harvey’s hands and Mr Harvey thereafter ceased to remit funds to the Company.

28. Mr Balafoutis also points to the delays by Ms Morphett in bringing and progressing the application to terminate the winding up, including Ms Morphett’s delay in bringing any application to terminate the winding up for ten months, until September 2016, and the further delay, after the application was filed, resulting from extensions of time to file evidence sought by Ms Morphett and the filing of several affidavits by Ms Morphett, which Mr Kerr submits contained omissions and misstatements to which he responded by further evidence. Mr Kerr relies on that delay as having substantially increased the costs of the winding up and there is little doubt that it will have done so. Mr Balafoutis also submits that Mr Kerr was required to respond to Ms Morphett’s application to terminate the winding up where the affidavit evidence led in support of it was, he submits, incomplete and misstated material facts. I do not express any view as to that matter, which may need to be determined in the substantive application to terminate the winding up. I accept that these matters were outside Mr Kerr’s control, once he chose to defer taking steps to realise the Company’s assets pending the application to terminate the winding up, and the evidence indicates that Mr Kerr’s solicitor regularly followed up as to the lack of progress in that application. I am satisfied that the period during which that work was performed was extended, partly by Mr Kerr’s decision to await the outcome of the application to terminate the winding up, but largely by reason of Ms Morphett’s delays in the commencement and conduct of that application. I am also satisfied that there has been additional complexity in the matter by reason of Ms Morphett’s and Mr Harvey’s conduct.

29. The Court is also to have regard to whether a liquidator was or is likely to be required to deal with extraordinary issues, or accept a higher level of risk or responsibility than is usually the case; the value and nature of any property dealt with, or likely to be dealt with, by the liquidator; whether the liquidator was, or is likely to be, required to deal with other insolvency practitioners; and the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors. It seems to me that Mr Kerr has not been required to deal with extraordinary issues. Mr Balafoutis submits that Mr Kerr was placed in a position of greater than usual risk because there is a real likelihood that he would not be able to recover his remuneration (once approved) and disbursements, where he has incurred legal costs which exceed the amount of cash held by the Company. I interpolate that further funds may become available as a result of a payment of rent to be made by Mr Harvey as a condition of adjourning the application to terminate the winding up. Mr Kerr also points to the fact that the Company is unlikely to have assets to realise if Westpac enforces its security over the Company’s two properties. I accept that there is a degree of risk to Mr Kerr, as would commonly be the case in a court-ordered winding up where a company has limited assets or those assets are secured to a lender. I do not consider that the level of risk or responsibility involved in the management of the Company’s affairs was such as to warrant the charging of higher fees by Mr Kerr than would ordinarily be charged by a court-appointed liquidator, and there is no suggestion that Mr Kerr’s hourly rates are unreasonably high, although there are issues as to the number of staff involved in this liquidation and the amount of time spent which I will address below.

30. I have had regard to the value and nature of the property that was dealt with by Mr Kerr, which are relevant to the question of proportionality of the costs claimed. Mr Kerr has not realised any property of the Company while the application to terminate the winding up has been pending, and will not deal with any such property if that application is successful. The only property of value that may be available to be dealt with by the Company is the Cessnock and Bar Point properties, with an estimated value of about $995,000, and cash of about $135,000, plus the rent to be paid by Mr Harvey. As I noted above, Mr Kerr’s assessment is that the debt owed by TOHC is unlikely to be recoverable, and Mr Kerr has valued the boats and equipment owned by the Company as having no value. This matter does not assist Mr Kerr, since substantial costs have been incurred in respect of a company which, on his assessment, has only two property assets, both of which may ultimately not be available to the Company because of Westpac’s security, and limited funds. The amount of remuneration claimed is also a substantial proportion of the value of those properties, as assessed by Mr Kerr, if they are ultimately available to the Company. Mr Kerr was not required to deal with other insolvency practitioners.

31. Section 473(10)(k) of the Corporations Act requires that, if remuneration is ascertained, in whole or in part, on a time basis, the Court is also to have regard to the time properly taken, or likely to be properly taken, by the liquidator in performing the work and whether the total remuneration payable to the liquidator is capped. Mr Balafoutis submits that time-based charging is appropriate in the relevant circumstances and I would, in principle, accept that submission. Mr Balafoutis also relies on the observation of Bathurst CJ in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above at [59]–[61], where the Chief Justice observed, inter alia, that:

“The liquidator submitted that once it was established that the work was necessary and was performed in a reasonable and timely fashion, the value of the work involved was an irrelevant consideration. Put in that bald fashion, I am unable to agree. The judge in considering the amount to be awarded was entitled to take into account all the matters in s 473(10) including the value of the work in the sense referred to at [55] above. That being said, the fact that the work was required and there was no evidence that the rates charged or the hours spent were excessive is a highly relevant factor.”

Mr Balafoutis places particular weight on the Chief Justice’s observation in the last sentence quoted above, which must of course be read subject to the Chief Justice’s observation (which I quoted above) that the liquidator bears the onus of establishing that the amount of remuneration he or she seeks is fair and reasonable. Mr Balafoutis also emphasises, and I accept, that the mere fact that the work performed by a liquidator does not lead to augmentation of the funds available for distribution does not mean that the liquidator is not entitled to be remunerated for it, subject to the significant qualification that it was reasonable to carry out the work and the amount charged is reasonable: Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above at [46].

32. I recognise that Mr Kerr indicated that he would seek to claim remuneration on a time basis in his first report to creditors and that a majority by number of creditors, being several creditors other than Mr Harvey, appear to have approved Mr Kerr’s remuneration and I have given weight to that matter. Mr Balafoutis also points to Mr Kerr’s affidavit evidence as to the hourly rates for the staff engaged in the liquidation, their qualifications and the role they have undertaken and as to the time recording system maintained by his firm (Kerr 20.3.17 [48]) and to his expressed view that a time based charging method is appropriate, having regard to the issues encountered with the Company and the actions of Ms Morphett and Mr Harvey (Kerr 20.3.17 [57]). Mr Balafoutis also points to Mr Kerr’s evidence that he has reviewed the time sheets of staff working on the matter and made reductions in the amount of remuneration sought (which, I interpolate, are substantial in absolute terms although less substantial as a proportion of the remuneration claimed) and that he has delegated much of the work undertaken to less senior staff. Evidence of this kind, as to the process for time-charging, is plainly relevant in an application of this kind but provides little assistance in identifying the particular matters on which time was spent and whether that time was reasonably spent on those matters.

33. On the other hand, Mr Newton, who as I noted above appears for Ms Morphett and Mr Harvey, draws attention to the fact that the liquidator’s time records disclose that some 24 staff have spent in excess of 940 hours working on the Company’s liquidation and submits that:

“[T]he liquidator and numerous staff spent an extremely large amount of time on the liquidation of a small private company with only a few assets and only a small amount of creditors.”

Mr Newton also points to the size of the amount claimed by comparison with other claims for remuneration in more complex matters, and the fact that the amount claimed is almost double the amount of remuneration to 31 May 2017 of $209,685.50 excluding GST for which Mr Kerr had sought approval in his first report to creditors dated 17 May 2016. Mr Newton also submits that it is almost impossible to assess whether the hours spent by the liquidator and his staff were reasonably necessary or to assess the quality of the work undertaken from the time records on which Mr Kerr relies.

34. The amount of remuneration claimed by Mr Kerr is large, for a liquidation of a proprietary company of a relatively small scale, notwithstanding the period for which the liquidation has extended. It seems to me that the evidence and time recording information on which Mr Kerr relies identify the time that was spent, and to some extent the work that was done, but provide limited assistance in an assessment of its necessity or proportionality. At the conclusion of the hearing, I requested Mr Kerr to provide a summary document identifying categories of work divided by person, including identifying or estimating remuneration referable to the conduct of the proceedings. The document provided by Mr Kerr in response to that invitation emphasises the difficulties with the application as it presently stands. Remuneration is claimed in respect of work done by four partners, a principal, three persons designated “manager 1”, an assistant manager, three persons designated “senior analyst 1”, seven juniors, two treasury staff, an accountant, a person designated “analyst 2”, three further senior analysts and two personal assistants, although I recognise that the substantial bulk of the work on the liquidation was done by Mr Kerr, one “manager 1”, an assistant manager, an “analyst 2” and one of the juniors and lesser amounts of time were recorded by other persons. It seems to me that, notwithstanding Mr Kerr’s evidence, further explanation is required as to how the liquidation required 140 hours of his time; 365 hours of that manager 1’s time; 152 hours of that assistant manager’s time; 208 hours of the analyst’s time; and the use of numerous other staff members recording time in lesser amounts.

35. I recognise that the amount of remuneration claimed is categorised within Mr Kerr’s evidence and the time sheets in broad categories that suggest the nature of the work done, such that nearly $30,000 is attributable to the category “assets”, $83,366 to the category “creditors”, a modest amount of $3,842 to the category “employees”, an amount of $84,419 to the category “trade on”, $149,002 to the category “investigation” and $57,826 to the category “administration”. It appears, from a further document provided by Mr Kerr at the Court’s request, that remuneration claims of $41,571 are attributable to the application to terminate the winding up and $20,528 to time in respect of the remuneration application. However, the evidence does not seem to me to explain the need for a relatively large number of staff to be involved in the liquidation, or the particular steps which were taken within the general categories of work that generated the substantial remuneration claims within those categories, particularly in respect of “creditors”, “trade on”, “investigation” and “administration”. The explanation of that matter might well require an assessment of the link between the time spent and the 33 items of work to which I referred in paragraph 17 above, or at least the more significant of those items, but Mr Kerr’s evidence does not expressly address that link. The work in progress schedules on which Mr Kerr relies may provide assistance in that respect, but only if the time spent can be linked to the items of work to which it relates from the relevant narratives. It seems to me that Mr Kerr would need to address that matter by evidence of the kind to which I referred above, which would likely need to address the need for the particular work done in its factual context, and address the need for the number of staff involved in it and why that work took the time claimed for it.

34. I also recognise that Australian Securities and Investments Commission (“ASIC”) was given notice of this application and has not intervened in it. Mr Balafoutis submits that the Court may properly infer, from ASIC’s position, that nothing in the material provided to it has caused it to form the view that any aspect of the liquidator’s claim for remuneration requires regulatory intervention or warrants the making of submissions before the Court: Re Idylic SolutionsPty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292; (2016) 115 ACSR 581 at [6]; Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above at [23]. In this case, that inference does not seem to me to be of sufficient weight to warrant the approval of the entire amount of the remuneration presently claimed, and the evidence does not provide a basis for determining any lesser amount.

35. I have no doubt that Mr Kerr is entitled to remuneration in a substantial amount. However, the evidence as it stands does not leave me with any state of satisfaction that the amount claimed is justifiable in full or allow any rational basis for me to determine another amount that would be justifiable. I do not consider that I should dismiss the application for remuneration without allowing Mr Kerr the opportunity to seek leave to reopen and lead further evidence, if he wishes to do so, addressing more directly the matters to which I have referred above, such as the time costs that were attributable to the major tasks undertaken (as distinct from broad categories of work done); the number and level of staff allocated to those major tasks and the number of staff involved in the matter generally; and any matters that increased the costs incurred in particular tasks beyond what he would ordinarily expect for a company of this kind.

Orders

38. The only order that I will make at this stage is to stand the matter over against the contingency that Mr Kerr will wish to seek leave to reopen and lead further evidence. I will hear the parties as to whether directions should be made as to when any such evidence should be led.

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Decision last updated: 02 June 2017