In the matter of J & Lee Property Investment Group Pty Limited (in liquidation)

Case •

[2019] NSWSC 927

•

19 July 2019

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of J & Lee Property Investment Group Pty Limited (in liquidation) [2019] NSWSC 927
Hearing dates: 15 July 2019
Decision date: 19 July 2019
Jurisdiction:Equity - Corporations List
Before: Rees J
Decision:

(1)   Note the undertaking of Peter Hillig not to take payment from the second plaintiff for remuneration approved by the creditors of the second plaintiff to the extent that the remuneration is in respect of work for which remuneration is approved in Order 2.
(2)   Approve payment of the receivers’ remuneration in the sum of $199,885.68 (inclusive of GST) for the period 16 August 2017 to 30 June 2019.

Catchwords: CORPORATIONS — Winding up — Approval of remuneration — Where liquidator appointed as receiver of trust assets — Remuneration in respect of liquidation approved by creditors — Application to approve remuneration in respect of administration of trust assets — Where work apportioned between liquidation and receivership — Time-based approach reasonable having regard to value of assets — Remuneration approved.
Legislation Cited: Corporations Act 2001 (Cth), ss 425(8), 459A
Uniform Civil Procedure Rules 2005 (NSW), r 26.4
Cases Cited: 13 Coromandel Place Pty Limited v CL Custodians Pty Limited (in liq) (1999) 30 ACSR 377 at 385; [1999] FCA 144
Application of Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798
In the matter of Gondon Five Pty Ltd and Cui Family Asset Management Pty Ltd [2019] NSWSC 469
In the matter of J & Lee Property Investment Group Pty Limited [2017] NSWSC 1115
In the matter of J & Lee Property Investment Group Pty Limited (No 2) [2018] NSWSC 1728
In the matter of J & Lee Property Investment Group (unreported, Supreme Court of New South Wales, Rees J, 25 February 2019)
In the matter of Maureen Michael Management Pty Ltd (2005) 55 ACSR 539; [2005] NSWSC 1044
In the matter of Primespace Property Investment Limited (in liq) [2016] NSWSC 1821
In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668
Re Crest Realty Pty Ltd (No 2) (in liq.) [1977] 1 NSWLR 664; (1977) 2 ACLR 502
Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 118 ACSR 333; [2017] NSWCA 38
Category:Principal judgment
Parties: Peter Hillig as Liquidator of J & Lee Property Investment Group Pty Ltd (In Liquidation) and Peter Hillig and Michael John Morris Smith as joint and several Receivers and Managers of the J & Lee Group Trust (Applicants)
New South Wales Crime Commission (First Respondent)
Seong Won Lee (Second Respondent)
Representation:

Counsel:
Mr S Golledge (Applicants)
No appearance (Respondents)

  Solicitors:
Matthews Folbigg Solicitors (Applicants)
File Number(s): 2016/383417

Judgment

  1. HER HONOUR: This is an application for approval of receivers’ remuneration in circumstances where remuneration for part of the work has already been approved by creditors as liquidator’s remuneration. Peter Hillig has been the liquidator of J & Lee Property Investment Group Pty Limited since February 2017. Peter Hillig and Michael Smith have been joint and several receivers and managers of the J & Lee Group Trust, of which J & Lee Property Investment Group is trustee, since 16 August 2017.

  2. The receivers seek approval of remuneration of $199,885.68 including GST from their appointment until 30 June 2019. Mr Hillig has not received the liquidator’s remuneration approved by the creditors and, in the event that the receivers’ remuneration is approved, Mr Hillig undertakes to ensure that he will not draw the same fees as liquidator of the company. Such an undertaking is appropriate as Mr Hillig should obviously not be paid twice.

facts

  1. On 9 April 2008, J & Lee Property Investment Group was incorporated. At all relevant times, Seong Won Lee was the sole officeholder of the company. Seong Won Lee, according to the records of the Australian Securities and Investments Commission, comes from South Korea.

  2. On 15 May 2009, the J & Lee Group Trust was settled. The original unitholders of the trust were Seong Won Lee, Seul A Lee and Elisabeth Park. There is no register of unitholders and it is unclear whether they remain unitholders. J & Lee Property Investment was appointed as trustee. The trust deed contained an “ipso facto clause”, such that the company became disqualified from holding office as trustee if the company went into liquidation.

  3. The company was the registered proprietor of three properties: one at Mascot, one at Vineyard and one at Liverpool Street, Sydney. Although it is not entirely clear, it would appear that the Mascot and Vineyard properties were trust assets but the Liverpool Street property was not. The properties had a combined value of some $20 million.

  4. In about May 2010, the New South Wales Crime Commission commenced proceedings against the company and others to recover proceeds said to be derived from illegal activities. On 30 October 2015, consent orders were made in those proceedings, including an order that the company pay $8.5 million to the Treasurer.

  5. On 21 December 2016, these proceedings were commenced in the form of an application to appoint a liquidator to the company under section 459A of the Corporations Act 2001 (Cth). The company had failed to comply with a statutory demand issued by the Chief Commissioner of State Revenue for some $118,000 in unpaid land tax in respect of the three properties of which the company was registered proprietor. On 13 February 2017, Peter Hillig was appointed as liquidator to the company. On 22 February 2017, Mr Hillig retained solicitors on a speculative basis, such that the solicitors would receive a 25% uplift in their fee upon the successful recovery of funds in the matter.

  6. As a consequence of the appointment of a liquidator to the company, J & Lee Property Investment Group was automatically disqualified as trustee of J & Lee Group Trust and the liquidator held any trust properties as a bare trustee. By reason of this, the liquidator applied to be appointed as a receiver and manager of J & Lee Group Trust. On 16 August 2017, Brereton J appointed Mr Hillig and Michael Smith as receivers and managers of the assets and undertaking of the J & Lee Group Trust: In the matter of J & Lee Property Investment Group Pty Limited [2017] NSWSC 1115. His Honour noted at [9]:

Somewhat ironically, as I understand the position advanced by the directors, they contend that the documents relied on by the liquidator as indicating that the Mascot and Vineyard properties are trust assets are fraudulent, and that those properties are not trust assets. The irony is that if that contention is correct and the properties are not trust assets, then this application is unnecessary, and the liquidator would be able to sell those properties in his own right as liquidator, without also seeking to be appointed receiver of the trust assets.

  1. His Honour noted that it appeared likely that there would be a surplus of assets after payment of the company’s debts and an application to terminate the winding up might well succeed but, after repeated adjournments to permit such an application to be made, none had been. His Honour considered that the Court could not indefinitely defer dealing with the liquidator’s application to afford the directors an opportunity to apply to terminate the winding up, which they appeared to be unwilling to do, but his Honour proposed to incorporate conditions to minimise any irrevocable prejudice.

  2. His Honour considered that it was appropriate to appoint the liquidator as a receiver of the company’s trust assets in order to make it clear beyond question that the liquidator had control of all of the assets in the company’s name. However, in light of the very considerable surplus of assets over liabilities and because of proceedings in another division of the Court to set aside or vary the proceeds of crime order , his Honour imposed a condition that the receivers not sell the trust properties without the leave of the Court in order to preserve any opportunity to apply to terminate the winding up. His Honour also refrained from determining whether apparent trust assets were in fact trust assets and suggested that the liquidator could apply for advice in due course as to whether he would be justified in treating certain assets as trust assets. Amongst the orders made by his Honour were:

(3)   The receivers not, without the leave of the Court:

(a)   sell any trust assets; or

(b)   make any distribution of trust assets or their proceeds to creditors or beneficiaries.

(4)   The receivers have liberty to apply for the approval of their remuneration upon the realisation of the trust assets.

  1. Following their appointment as receivers, Mr Hillig and Mr Smith created a separate file within their firm. Time spent attending to tasks associated with the liquidation was recorded on one file, whilst time spent attending to tasks associated with the receivership was recorded on another. The details of the time spent, by whom and on what tasks are contained in Work In Progress (WIP) reports printed from the firm’s practice management system.

  2. On 24 May 2018, Seong Won Lee was sentenced to a period of imprisonment.

  3. On 25 October 2018, the receivers filed an Interlocutory Process seeking directions empowering them to sell the Mascot and Vineyard properties. On 12 November 2018, Parker J granted leave to the receivers to sell the properties and to pay the costs and expenses of the sales and of the application: In the matter of J & Lee Property Investment Group Pty Limited (No 2) [2018] NSWSC 1728. At [12]:

In my view, the time has come for the property to be sold. Since August 20[1]7, no one has come forward to seek to take control of the trust, and the receivers have been unable to identify or make contact with the named original unitholders, apart from Mr Lee who was heard on last year's application. The liabilities of the Company, including the liability resulting from the proceedings brought by the New South Wales Crime Commission, continue to accrue interest and there are no funds available to discharge the liabilities which continue to accrue from holding the property (such as land tax). There is clearly room for debate about whether all of the liabilities of the Company are properly payable out of the assets of the trust, but on any view it is in the interests of the unitholders, just as much as it is in the interests of the creditors, to convert the properties into cash so that undoubted liabilities can be discharged and the incurring of further interest can be avoided.

As there had been some difficulties serving Mr Lee with the application, Parker J stayed the orders until satisfactory evidence was put before the Court to show that service had been effected. On 19 November 2018, Seong Won Lee was served with the application which had been heard by Parker J.

  1. On 21 February 2019, the liquidator’s and receivers’ solicitors attempted to notify the original unitholders of an application to lift the stay granted by Parker J. The letter to Seul A Lee was returned, and there was no reply to the letter to Elisabeth Park. Mr Hillig has not otherwise been able to locate or communicate with these original unit-holders.

  2. On 21 and 25 January 2019 and 6 February 2019, the liquidator’s and receivers’ solicitors also wrote to Seong Won Lee in prison, informing him that they intended to apply to lift the stay. On 13 February 2019, the solicitors served their submissions in support of the application to lift the stay on Seong Won Lee. On 25 February 2019, I granted the application to lift the stay: In the matter of J & Lee Property Investment Group Pty Ltd (unreported).

  3. On 3 April 2019, contracts were exchanged to sell the Vineyard property for $905,000. On 12 April 2019, contracts were exchanged to sell the Mascot property for $17.49 million.

  4. On 8 May 2019, Seong Won Lee was released from prison but was detained by the Department of Home Affairs, as an order had been made for Mr Lee to be deported to South Korea. On 20 May 2019, Mr Hillig sent an email to Seong Won Lee asking for the current address of Seul A Lee and Elisabeth Park, and information as to any relation between these unitholders and him.

  5. On 24 May 2019, the proceeds of sale of the Mascot and Vineyard properties were paid to the receivers, comprising some $17.5 million. From the proceeds of sale, some $1.7 million is payable for goods and services tax. The proceeds available for distribution are $15,784,963.29. On 31 May 2016, a report to creditors was issued. The creditors are the New South Wales Crime Commission, a strata manager, the Australian Taxation Office, Mr Lee’s solicitors and various members of Mr Lee’s family who advanced funds to the company.

  6. On 18 June 2019, Seong Won Lee replied to Mr Hillig’s email of 20 May 2019:

Hi. This is seong won lee director of J & Lee property investment group I got your email that you guys want to know fee information about my address and my sister. I only have overseas address south korea

My visa got cancle remove from Australia I will give you my korea address soon as possible and bank detail. Can you send me all our dept I have to clear soon as possible please thank you.

It can be inferred from this email that Seong Won Lee expected to return to South Korea shortly thereafter.

  1. On 25 June 2019, the creditors of the company approved the liquidator’s remuneration as follows:

(a)   remuneration from 13 February 2017 to 29 May 2019 of $259,204.50 (excluding GST); and

(b)   remuneration from 30 May 2019 to the conclusion of the winding up to a maximum about of $115,000 (excluding GST).

It is reasonable to think that the creditors, or at least some of them, reviewed the liquidator’s application for approval of remuneration before approving it.

  1. On 5 July 2019, the liquidator’s and receivers’ solicitors sent an email to Seong Won Lee with submissions and evidence in support of the current application. This material was also sent to the New South Wales Crime Commission, which has indicated that it does not oppose the orders sought. On 8 July 2019, the liquidator and receivers were granted leave by Black J to amend the Interlocutory Process to now seek the following orders in respect of remuneration:

4.   Orders approving the following payments:

(a)   Liquidator’s remuneration in the sum of $201,699.37 (inclusive of GST for the period 13 February 2017 to 15 October 2018;

(b)   Receiver’s remuneration in the sum of $28,554.90 $199,885.68 (inclusive of GST) for the period 16 August 2017 to 15 October 2018 30 June 2019.

The Amended Interlocutory Process was sent by email to Seong Won Lee.

  1. The reason for the amendment is twofold. First, the liquidator’s remuneration has already been approved by creditors. But, secondly, after receiving legal advice, the liquidator and receivers realised that part of the work that had been put to the creditors for approval as liquidator’s remuneration was more properly characterised as work done in the administration of the trust or as receivers. Such work should be charged against the assets of the trust rather than those of the company. Consequently, Mr Hillig has now apportioned the work done between that done in respect of the liquidation and that done in respect of the assets of the trust, both before the appointment of receivers and since appointment. It is apparent from the annexures to Mr Hillig’s affidavit of 5 July 2019 that considerable work has been done to endeavour to achieve this apportionment.

Re-allocating remuneration

  1. Where a liquidator is appointed to a company that carries on business as a trustee or holds trust assets, the liquidator is entitled to charge the remuneration for that work to the trust assets, provided that the court is satisfied that the liquidator has acted responsibly in managing those assets. As Finkelstein J explained in 13 Coromandel Place Pty Limited v CL Custodians Pty Limited (in liq) (1999) 30 ACSR 377 at 385; [1999] FCA 144 at [34]:

These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them.

The cases to which his Honour referred included Re Crest Realty Pty Ltd (No 2) (in liq.) [1977] 1 NSWLR 664; (1977) 2 ACLR 502 in which Needham J considered that the activities undertaken by a liquidator of a trust company would ordinarily fit within the category of work related to the winding up of the company as well as work related to the administration of trust assets. As Finkelstein J noted, “The importance of the distinction is that work that is solely concerned with the winding up and not with the administration of trust assets cannot ordinarily be charged against those assets”: 13 Coromandel Place at [33].

  1. In In the matter of Maureen Michael Management Pty Ltd (2005) 55 ACSR 539; [2005] NSWSC 1044, Young CJ in Eq accepted the “general proposition that, where a liquidator finds himself in charge of a trust fund and administers it, the court will normally exercise its discretion to allow the liquidator remuneration and expenses out of the fund”: at [28]. In so concluding, his Honour relied upon the decision of Campbell J in Application of Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798, a decision which notes that this approach is consistent both with English authority and general principles relating to the remuneration of trustees.

  2. In light of these authorities, the tasks undertaken by the liquidator which can properly be characterised as tasks associated with administering a trust fund may be charged against the assets of the trust. It will be recalled that the company holds one asset beneficially, being a property in Liverpool Street, Sydney, whilst it appears to have held the Vineyard and Mascot properties on trust. The trust estate is considerably larger than the net assets of the company.

  3. It seems to me that where the company, and thus its liquidator, was doing work in respect of the trust and trust assets, the trust should bear that cost. The creditors of the company and its shareholders should not bear the cost of such work as this may result in creditors of the company being paid less than they might otherwise receive in payment of their debts, or the shareholders of the company receiving less than they might otherwise on the distribution of any surplus in the winding up.

  4. Accordingly, it seems appropriate to approve the receivers’ remuneration, noting Mr Hillig’s undertaking that he will not draw payment from the company for the remuneration already approved by the creditors to the extent that it is also covered by the order which I propose to make.

Receiver’s remuneration

  1. The receivers were appointed by the Court and rule 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) provides:

A receiver is to be allowed such remuneration (if any) as may be fixed by the Court.

  1. Section 425(8) of the Corporations Act (2001) (Cth) sets out factors to which the Court must have regard in determining whether remuneration to be paid to a receiver appointed under a power contained in an instrument is reasonable. Such factors may be considered by analogy in an application such as this: In the matter of Gondon Five Pty Ltd and Cui Family Asset Management Pty Ltd [2019] NSWSC 469 at [34(4)] per Brereton J. Some of the statutory factors which may be pertinent here are: whether the work performed by the receiver was reasonably necessary, the period of time over which the work was performed, the quality and complexity of the work, and the value and nature of any property dealt with.

  1. In Gondon Five, Brereton J summarised the relevant principles in respect of determining the remuneration of receivers at [34] to [35]:

[34] … (1)   A receiver is entitled to the costs, charges and expenses properly incurred in the discharge of the receiver’s ordinary duties …

(2)   In fixing remuneration, the objective is to award a sum or devise a formula which will reasonably and fairly compensate the receiver for the time and trouble expended in the execution of his or her duties and the responsibility he or she has assumed.

(3)   The ultimate question is what amount of remuneration is ‘reasonable’, and this involves considering (a) whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and (b) whether the amount claimed for it is a fair and reasonable reward for such work. On those questions, the receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them.

(4)   By analogy, the task involves consideration of the matters referred to in Corporations Act, s 425(8), which applies to receivers appointed under an instrument …

(5)   Many of those factors … have as their unifying theme the concept of proportionality (being the relationship of the work done and the remuneration claimed to the value of the estate), which is an important consideration in determining reasonableness. …

(7)   If a time-based approach is adopted, the Court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work. The Court will usually act on time sheets created in the receiver’s office, provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades of his or her staff. …

[35]   The Court expects an applicant for remuneration to produce sufficiently detailed evidence of the work in respect of which remuneration is claimed as to enable the amounts claimed for the various tasks performed to be dissected and identified. Although, on an application of this kind, it is not the function of the Court to undertake a taxation of the receiver’s bill on an item-by-item basis – the exercise involves a more impressionistic, evaluative and “broad-axe” approach – such a requirement would serve no purpose if the Court did not have regard, to some extent at least, to the detail. The categorising of work done according to tasks in the administration enables the Court to ascertain and allow (in whole or in part) – or disallow – the total amount of remuneration claimed in respect of a particular task, according to whether such task was (wholly or partly) – or was not – reasonably undertaken within the proper scope of the administration.

  1. The courts undertake a similar task when approving a liquidator’s remuneration: In the matter of Primespace Property Investment Limited (in liq) [2016] NSWSC 1821 at [29]–[33] per Black J; Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 118 ACSR 333; [2017] NSWCA 38.

  2. In reviewing the receivers’ claim for remuneration, I have adopted the approach of Black J (on remitter from the Court of Appeal) in In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 at [29]:

I have not undertaken a line-by-line review of the bill narratives, but have reviewed them in a broad way, and considered whether they are consistent with Mr Sanderson’s affidavit evidence and other evidence led in support of the claim for remuneration. I adopted the same approach in Idylic Solutions above at [58] and Gleeson JA took the same course in Re Banksia Securities Ltd above at [48].

This is consistent with the approach taken by Brereton J in Gondon Five at [35].

Remuneration sought

  1. Mr Hillig has given a detailed explanation of the work that was done. The receivers were required to identify and secure the assets of the J & Lee Group Trust, obtain the approval of the Court to sell the assets, realise the assets for the benefit of trust creditors and, potentially, those entitled to share in any residue after payment of creditors, discharge or at least provide for payment of liabilities arising from any sale such as GST or capital gains tax, identify those entitled to share in the proceeds of those realisations and then distribute the proceeds amongst those persons. This latter step is still to be undertaken. It was submitted, and I agree, that the work was reasonably necessary given the purpose for which they were appointed as receivers.

  2. The receivers claim remuneration calculated on the basis of time spent by them and members of their staff on tasks arising out of their appointment as receivers. Detailed records have been provided setting out the time taken to do particular tasks, the people who undertook each task and their hourly rate. Mr Hillig, an experienced practitioner, has reviewed the time records and is satisfied that the time spent by members of his staff was reasonable given the nature of the task performed and the seniority and experience of the person involved. An examination of the time records does not suggest any reason for doubting his evidence.

  3. The bulk of the work was carried out by a senior manager, whose hourly rate was about 20% lower than that of the receivers themselves. The senior manager was primarily involved in the conduct of the sales. It was submitted that it was appropriate that this task was delegated to a senior manager whose work did not require continual supervision by the receivers themselves. More mundane tasks were allocated to more junior staff. Mr Hillig and Mr Smith, according to the detailed records of their firm, were mainly involved with more strategic matters, such as marketing programs for the properties, or legal matters requiring discussions with solicitors. It appears that there has been an appropriate allocation of tasks as between senior and more junior staff.

  4. Mr Hillig has given evidence that the hourly rates are consistent with rates charged by comparable firms operating in the Sydney market. The rates appear to be reasonable. I note that the company’s creditors approved the liquidator’s remuneration calculated by reference to those same rates.

  5. Assessed as a proportion of the amounts recovered from the properties, the remuneration claim obviously comes well within reasonable limits. Having regard to the approach of the Court of Appeal in Sakr Nominees, and given the large sale proceeds in this case, I consider that a commission-based approach is less suitable for determining proportionate remuneration. Overall, it seems to me that the amount claimed by reference to time costing represents reasonable remuneration for the work that was done.

Orders

  1. For these reasons, I make the following orders:

  1. Note the undertaking of Peter Hillig not to take payment from the second plaintiff for remuneration approved by the creditors of the second plaintiff to the extent that the remuneration is in respect of work for which remuneration is approved in Order 2.

  2. Approve payment of the receivers’ remuneration in the sum of $199,885.68 (inclusive of GST) for the period 16 August 2017 to 30 June 2019.

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Decision last updated: 19 July 2019

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