FEDERAL COURT OF AUSTRALIA
Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2) [2019] FCA 93
File number: SAD 222 of 2015 Judge: BESANKO J Date of judgment: 11 February 2019 Catchwords: CORPORATIONS — application for orders under s 1322(4)(a) of the Corporations Act 2001 (Cth) — alternative application for determination or fixing of remuneration under s 449E(1)(c) and s 511 of the Act — where plaintiffs appointed joint and several administrators of three companies pursuant to s 436A of the Act — where plaintiffs subsequently appointed joint and several liquidators of the companies pursuant to ss 439C(c) and 446A of the Act — where plaintiffs purported to receive remuneration following resolutions by creditors of the companies — where plaintiffs required to provide a report to creditors containing certain information prior to creditors determining remuneration under s 449E(7) and s 499(7) of the Act — where plaintiffs contravened s 449E(7) and s 499(7) of the Act by failing to provide remuneration reports to creditors and by providing inadequate remuneration reports to creditors — where the Australian Securities and Investments Commission intervened in the proceeding under s 1330 of the Act
CORPORATIONS — where plaintiffs seek orders under s 1322(4)(a) of the Act that the fixing of their remuneration as administrators and liquidators of the companies in various periods is not invalidated by any contravention of s 449E(7) or s 499(7) of the Act — consideration of the meaning of “contravention” in the context of s 1322(4)(a) — consideration of the meaning of “acted honestly” in the context of s 1322(6)(a)(ii) — whether plaintiffs bear the onus of establishing that they acted honestly — consideration of the meaning of “substantial injustice” in the context of s 1322(6)(c) — whether the test for substantial injustice is limited to ascertaining whether any person will suffer substantial injustice by reason of an order being made under s 1322(4)(a) — whether the Court has a residual discretion to refuse to make an order under s 1322(4)(a) notwithstanding satisfaction of the relevant preconditions under s 1322(6) — whether public interest considerations are relevant to the exercise of the residual discretion
CORPORATIONS — where plaintiffs seek the determination or fixing of their remuneration as administrators under s 449E(1) of the Act and as liquidators under s 511 of the Act — consideration of the factors relevant to the determination of whether remuneration is reasonable under s 449E(4) and s 473(10) of the Act — consideration of the concept of “proportionality” in assessing reasonableness of remuneration — whether it is necessary for the Court to conduct a line by line analysis of remuneration claimed before concluding whether remuneration is reasonable or excessive — whether insolvency practitioner bears onus of establishing reasonableness and prudence of tasks undertaken — whether liquidator is entitled to remuneration for work carried out that will not augment funds available to creditors — whether liquidator who acts reasonably in pursuing recoveries is entitled to remuneration even though no recoveries are ultimately made — consideration of the reasonableness of plaintiffs’ hourly charges — whether plaintiffs should have brought an application under s 511 of the Act seeking directions from the Court in relation to disputed debt and equity investigations — consideration of the extent of liquidator’s duty to augment assets of the company — consideration of the public interest in liquidator conducting investigations and examinations — whether liquidator is required to seek or obtain approval of the Court or the creditors in the course of conducting investigations and before instigating recovery proceedings — where the only two parties interested in the pool of assets from which the plaintiffs proposed to fund further investigations and possible legal proceedings requested information regarding proposed investigations and associated costs — consideration of the extent of liquidator’s duty to assist and cooperate with authorities
EVIDENCE — where ASIC adduced expert evidence of insolvency practitioner — where witness addressed plaintiffs’ claimed remuneration by reference to standard of a “competent and prudent insolvency practitioner” — whether witness had additional training, study or experience to demonstrate the acquisition of specialist knowledge of what a competent and prudent practitioner would do — consideration of the meaning of “competent and prudent and insolvency practitioner” — whether evidence of work competent and prudent insolvency practitioner would perform is relevant to Court’s assessment of reasonableness of the remuneration claimed
Legislation: Corporations Act 2001 (Cth) ss 425, 436A, 439A, 439C, 446A, 449E, 473, 474, 499, 504, 511, 533, 553C, 1322, 1330
Corporations Amendment (Insolvency) Act 2007 (Cth)
Proceeds of Crime Act 2002 (Cth) s 202
Uniform Companies Acts 1961 s 366
Cases cited: ANZ National Bank Ltd v Sheahan and Lock [2013] 1 NZLR 674
Australian Securities and Investments Commission v Dunner [2013] FCA 872; (2013) 303 ALR 98
Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424
Conlan v Adams [2008] WASCA 61; (2008) 65 ACSR 521
Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141
Hall & Ors v Poolman & Ors [2007] NSWSC 1330; (2007) 215 FLR 243
Hall v Poolman [2009] NSWCA 64; (2009) NSWLR 99
Ide v Ide [2004] NSWSC 751; (2004) 50 ACSR 324; (2004) 184 FLR 44
Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) [2017] FCA 1306
Lucantonio v Kleinert [2009] NSWSC 853
Meadow Springs Fairway Resort Ltd (In Liq) v Balanced Securities Ltd [2007] FCA 1443; (2007) 25 ACLC 1433
Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120; (2010) 80 ACSR 11
Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477; (1976) 2 ACLR 135
Re Helios Energy Ltd [2017] FCA 840; (2017) 122 ACSR 174
Re HIH Insurance Ltd (in liq); McGrath (in his capacity as Liquidators of HIH Insurance Limited (in liq) [2001] NSWSC 997; (2001) 39 ACSR 645
Re Korda; in the matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424
Re Walker [2005] NSWSC 557; (2005) 189 FLR 467
Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418
Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459
SK Foods LP v SK Foods Australia Pty Ltd (in liq) (No 3) [2013] FCA 526; (2013) 214 FCR 543
Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545
Dates of hearing: 27, 28, 29, 30 November 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 536 Counsel for the Plaintiffs: Mr A Tokley SC with Mr D O’Leary Solicitor for the Plaintiffs: DMAW Lawyers Pty Ltd Counsel for the Intervener: Mr J Vaughan SC with Mr M Sims Solicitor for the Intervener: Corrs Chambers Westgarth ORDERS
SAD 222 of 2015 IN THE MATTER OF CEDENCO JV AUSTRALIA PTY LTD (IN LIQUIDATION), SK FOODS AUSTRALIA PTY LTD (IN LIQUIDATION) AND SS FARMS AUSTRALIA PTY LTD (IN LIQUIDATION)
BETWEEN: IAN RUSSELL LOCK AND JOHN SHEAHAN AS FORMER JOINT AND SEVERAL ADMINISTRATORS OF CEDENCO JV AUSTRALIA PTY LTD (IN LIQUIDATION)
First Plaintiff
IAN RUSSELL LOCK AND JOHN SHEAHAN AS JOINT AND SEVERAL LIQUIDATORS OF CEDENCO JV AUSTRALIA PTY LTD (IN LIQUIDATION)
Second Plaintiff
IAN RUSSELL LOCK AND JOHN SHEAHAN AS FORMER JOINT AND SEVERAL ADMINISTRATORS OF SK FOODS AUSTRALIA PTY LTD (IN LIQUIDATION) (and others named in the Schedule)
Third Plaintiff
AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Intervener
JUDGE:
BESANKO J
DATE OF ORDER:
11 FEBRUARY 2019
THE COURT ORDERS THAT:
1.The plaintiffs’ application under s 1322(4)(a) of the Corporations Act 2001 (Cth) be refused.
2.The plaintiffs’ application for the determination or fixing of their remuneration be adjourned to a date to be fixed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BESANKO J:
INTRODUCTION
Mr Ian Russell Lock and Mr John Sheahan are the joint and several liquidators of SK Foods Australia Pty Ltd (in liquidation) (SKFA), Cedenco JV Australia Pty Ltd (in liquidation) (CJVA) and SS Farms Australia Pty Ltd (in liquidation) (SSFA). Except where it is necessary to distinguish between them, I will refer to these companies together as the Companies. On 6 May 2010, Mr Lock and Mr Sheahan were appointed joint and several administrators of each of the Companies pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act). On 11 August 2010, they were appointed joint and several liquidators of each of the Companies pursuant to ss 439C(c) and 446A of the Act.
The Companies were in the business of primary production and food processing and were part of a multi-national agribusiness group known as the SK Foods Group. The group was ultimately controlled by Mr Frederick Scott Salyer. Mr Salyer is a United States businessman. The SK Foods Group of companies included food producing companies located in New Zealand, Cedenco Foods (now Ex Ced Foods) and Cedenco Ohakune (the New Zealand Companies). Mr Lock and Mr Sheahan were also appointed liquidators of the New Zealand Companies.
The principal financier of the Companies was the Australia and New Zealand Banking Group Limited (ANZ) and the principal financier of the New Zealand Companies was ANZ National Bank (ANZ NZ). ANZ NZ is a wholly owned subsidiary of ANZ operating in New Zealand. In November 2009, ANZ and ANZ NZ appointed receivers to the Companies and to the New Zealand Companies. Before the appointment of receivers, the Companies had not been in breach of their terms of finance with ANZ, and the appointment of receivers had resulted from breaches of lending covenants by the New Zealand Companies. Shortly after their appointment, Mr Lock and Mr Sheahan ascertained that the business and assets of the Companies and of the New Zealand Companies were in the process of being sold by their respective receivers and that, in fact, a sale was imminent.
CJVA was a wholly owned subsidiary of SKFA and the two companies carried on a business in Australia as an unincorporated partnership under the name, Cedenco Australia. The significance of this fact is that the administrators and liquidators took the view that each company was jointly and severally liable for the debts incurred by the unincorporated partnership. The meetings of creditors which were held were, in the case of SKFA and CJVA, joint meetings. There were separate creditors’ meetings held in the case of SSFA.
Between 2010 and 2014, Mr Lock and Mr Sheahan performed their roles, first as administrators and then as liquidators of the Companies. They carried out a large number of tasks. Four work streams were identified for convenience. First, the plaintiffs carried out work after 10 December 2010 in investigating disputed debt and equity issues concerning SKFA. The disputed debt issue concerned the identity of the creditor to whom SKFA owed a large debt, and the disputed equity issue concerned the identity of the shareholders in SKFA. I will refer to this work stream as the Debt and Equity Issues, except where it is necessary to distinguish between the issues. Secondly, the plaintiffs carried out work in relation to investigating potential claims against the directors of the Companies and ANZ. I will refer to this work stream as the Potential Claims against the Directors and ANZ. Thirdly, the plaintiffs carried out work out in connection with issues arising under the Proceeds of Crime Act 2002 (Cth) (POC Act). I will refer to this work stream as Issues Arising under the POC Act. Finally, the plaintiffs carried out work in connection with applications relating to the receivers. I will refer to this work stream as Applications Relating to the Receivers.
Mr Lock and Mr Sheahan purported to receive remuneration following resolutions by creditors of the Companies. In the case of the administrations, s 449E(1)(b) of the Act provides that the administrator of a company under administration is entitled to receive such remuneration as is determined by resolution of the company’s creditors. In the case of the liquidations, s 499(3)(b) provides that the remuneration to be paid to the liquidator may be fixed by resolution of the creditors.
This proceeding has come about because Mr Lock and Mr Sheahan did not comply with the requirement in the Act that before the creditors determine the remuneration of an administrator or liquidator, the administrator or liquidator must provide a report containing certain information to the company’s creditors. Section 449E(7) of the Act is in the following terms:
Before remuneration is determined under paragraph (1)(b) or (1A)(b),the administrator must:
(a)Prepare a report setting out:
(i)Such matters as will enable the company’s creditors to make an informed assessment as to whether the proposed remuneration is reasonable; and
(ii)A summary description of the major tasks performed, or likely to be performed, by the administrator; and
(iii)The costs associated with each of those major tasks; and
(b)Give a copy of the report to each of the company’s creditors at the same time as the creditor is notified of the relevant meeting of creditors.
There is an identical provision in the case of a liquidation (s 499(7)).
Mr Lock and Mr Sheahan accept (it seems) that in the case of some creditors’ resolutions, they did not provide a remuneration report in accordance with s 449E(7) and s 499(7), and in other cases, the remuneration reports provided were not adequate in the sense that they did not meet the requirements of the subsections. That has led them to make an application to the Court for a number of orders which are put in the alternative. The orders which they seek are as follows:
SK Foods and Cedenco
1.The Liquidators seek orders pursuant to s 1322(4)(a) of the Act that the fixing of their remuneration as administrators of SK Foods and Cedenco is not invalidated by any non-compliance with s 449E(7) of the Act by virtue of any deficiency in the information regarding remuneration provided to creditors in connection with the resolution for the period:
1.1 6 May 2010 to 9 July 2010 in the amount of $205,788.79;
1.2 10 July 2010 to 6 August 2010 in the amount of $168,539.20; and
1.3 7 August 2010 to 10 August 2010 in the amount of $31,746.67.
2.In the alternative to the orders sought in paragraph 1 above, the Liquidators seek orders pursuant to the Court’s jurisdiction under s 449E(1)(c) of the Act, to fix their remuneration for the period 6 May 2010 to 10 August 2010 in the amount of $406,074.66 (plus GST).
3.The Liquidators seek orders pursuant to s 1322(4)(a) of the Act that the fixing of their remuneration as liquidators of SK Foods and Cedenco is not invalidated by any non-compliance with s 499(7) of the Act by virtue of any deficiency in the information regarding remuneration provided to creditors in connection with the resolution for the period:
3.1 11 August 2010 to 31 October 2010 in the amount of $550,000.00;
3.21 November 2010 to 30 November 2011 in the amount of $1,875,000.00;
3.3 1 December 2011 to 31 January 2012 in the amount of $346,384.43;
3.4 1 February 2012 to 29 February 2012 in the amount of $137,323.41;
3.5 1 March 2012 to 31 October 2012 in the amount of $953,711.14; and
3.6 1 November 2012 to 31 October 2013 in the amount of $599,635.30.
4.In the alternative to the orders sought in paragraph 3 above, the Liquidators seek orders pursuant to the Court’s jurisdiction under s 511(1) of the Act, to fix their remuneration for the period 11 August 2010 to 31 October 2013 in the amount of $4,462,054.28 (plus GST).
SS Farms
5.The Liquidators seek orders pursuant to s 1322(4)(a) of the Act that the fixing of their remuneration as administrators of SS Farms is not invalidated by any non-compliance with s 449E(7) of the Act by virtue of any deficiency in the information regarding remuneration provided to creditors in connection with the resolution for the period 10 July 2010 to 6 August 2010 in the amount of $12,633.32.
6.In the alternative to the order sought in paragraph 5 above, the Liquidators seek an order pursuant to the Court’s jurisdiction under s 449E(1)(c) of the Act, to fix their remuneration for the period 10 July 2010 to 6 August 2010 in the amount of $12,633.32 (plus GST).
7.The Liquidators seek orders pursuant to s 1322(4)(a) of the Act that the fixing of their remuneration as liquidators of SS Farms is not invalidated by any non-compliance with s 499(7) of the Act by virtue of any deficiency in the information regarding remuneration provided to creditors in connection with the resolution for the period:
7.1 11 August 2010 to 31 October 2010 in the amount of $93,061.83;
7.2 1 November 2010 to 20 June 2011 in the amount of $226,945.83;
7.3 21 June 2011 to 30 June 2011 in the amount of $16,420.84;
7.4 1 July 2011 to 30 June 2012 in the amount of $334,730.59; and
7.5 1 October 2012 to 31 October 2013 in the amount of $334,730.59.
8.In the alternative to the orders sought in paragraph 7 above, the Liquidators seek orders pursuant to the Court’s jurisdiction under s 511(1) of the Act, to fix their remuneration for the period:
8.111 August 2010 to 30 June 2012 in the amount of $671,159.09 (plus GST); and
8.21 October 2012 to 31 October 2013 in the amount of $129,262.16 (plus GST).
SK Foods, Cedenco and SS Farms:
9.The Liquidators seek orders pursuant to s 1322(4)(a) of the Act that the fixing of their remuneration as liquidators of SK Foods, Cedenco and SS Farms is not invalidated by any non-compliance with s 499(3) of the Act, by virtue of there being no formal resolution of creditors of those companies at a meeting of creditors approving such remuneration, or by any non-compliance with s 499(7) of the Act, by virtue of any deficiency in the information regarding remuneration provided to creditors in connection with the resolutions for the period 19 November 2013 to 12 September 2014 in the amount of $90,909.00.
10.In the alternative to the orders sought in paragraph 9 above, the Liquidators seek orders pursuant to the Court’s jurisdiction under s 511(1) of the Act, to fix their remuneration:
10.1as liquidators of SK Foods and Cedenco for the period 19 November 2013 to 12 September 2014 in the amount of $64,766.34 (plus GST); and
10.2as liquidators of SS Farms for the period 19 November 2013 to 12 September 2014 in the amount of $26,142.75 (plus GST).
In summary, the plaintiffs seek orders under s 1322(4)(a) of the Act, or in the alternative, they ask this Court to determine their remuneration under s 449E(1)(c) in case of the administrations, and under s 511 in the case of the liquidations. There is undoubtedly power for the Court to determine the plaintiffs’ remuneration in respect of their role as administrators in s 449E(1)(c). However, there is no specific power in s 499 which deals with voluntary liquidations, for the Court to determine a liquidator’s remuneration. The plaintiffs submit that where the mechanism for the approval of a liquidator’s remuneration is incapable of operating to determine remuneration, the situation is one in which a question that s 511 of the Act allows the Court to answer has arisen in the winding up (Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120; (2010) 80 ACSR 11 (Onefone) at [2] per Barrett J). The plaintiffs submit that this is such a case. The legal proposition was not disputed by the Australian Securities and Investments Commission (ASIC) who also referred to the decision in Re Walker [2005] NSWSC 557; (2005) 189 FLR 467 at 478 [33]. Nor did ASIC dispute the factual proposition that the absence of creditors means that the scheme under s 499(3) is unworkable.
ASIC intervened in this proceeding under s 1330 of the Act. As an intervener, it is taken to be a party to the proceeding and, subject to the Act, has all the rights, duties and liabilities of such a party (s 1330(2)). In fact, ASIC played a major role in the proceeding. It cross-examined witnesses, adduced evidence and made detailed submissions.
By way of general overview, ASIC pointed to the following. By December 2010, the ordinary unsecured creditors of SKFA and CJVA, whose claims had been admitted, had been paid 100 cents in the dollar, together with post-liquidation interest. By January 2011, the ordinary unsecured creditors of SSFA, whose claims had been admitted, had been paid 90 cents in the dollar with the balance of their debts and post-liquidation interest paid by April 2012, save and except for the claim of Cedenco. The plaintiffs did not have to conduct any business in the course of their administration of the Companies. Other than tax refund entitlements, the plaintiffs were not required to realise any assets of the Companies. The funds received and distributed by the plaintiffs were paid over to them by the Companies’ receivers and managers. Notwithstanding that the creditors in the liquidation of the Companies were paid in full during the period 6 May 2010 to 21 October 2014, the plaintiffs drew remuneration for professional fees as administrators and liquidators of the Companies in the total sum of $5,787,246.27 exclusive of GST. That remuneration did not include additional remuneration by way of recoupment of internal disbursements. In addition to the plaintiffs’ professional fees, some $5,235,255.60 was incurred in legal fees.
ASIC submits that the plaintiffs have not established the circumstances necessary for the making of orders under s 1322(4)(a). It submits that, in the circumstances, it is for the Court to determine the plaintiffs’ remuneration. It submits that the plaintiffs’ claim for remuneration is significantly overstated. It identified a number of features of the plaintiffs’ claim which lead to the conclusion (so it submitted) that it is excessive, including excessive hourly rates, unnecessary work carried out and inappropriate allocation of tasks in terms of the seniority of staff allocated to the task.
THE EVIDENCE
Both the plaintiffs gave evidence. Mr Lock swore three affidavits which were received as his evidence-in-chief and he was cross-examined by counsel for ASIC. Mr Sheahan swore two affidavits which were received as his evidence-in-chief and he was cross-examined at length by counsel for ASIC. My assessment of the plaintiffs as witnesses appears later in these reasons (at [104]–[113] Mr Sheahan and at [167] Mr Lock).
ASIC tendered an affidavit of Mr Adrian James Saggers who is a senior manager in the Insolvency Practitioners Stakeholder Team of ASIC. He was not required for cross‑examination. Mr Saggers deposed to the fact that ASIC keeps records of reports it receives pursuant to s 533 of the Act on its confidential internal public company database. Section 533 requires a liquidator to lodge a report with ASIC in certain circumstances, including if it appears to the liquidator that a past or present officer or employee or a member or contributory of the company may have been guilty of an offence under a law of the Commonwealth or a State or Territory in relation to the company, or a person who has taken part in the formation, promotion, administration, management or winding up of the company may have misapplied or retained or may have become liable or accountable for any money or property of the company, or may have been guilty of any negligence, breach of duty or breach of trust in relation to the company. Mr Saggers has reviewed that database and states that there is no record of the plaintiffs as joint and several liquidators lodging any reports with ASIC under s 533 of the Act in relation to SKFA, CJVA or SSFA.
ASIC tendered an affidavit of Ms Rachael Elizabeth King. Ms King is a solicitor employed by the firm of solicitors acting for ASIC. She was not required for cross‑examination. Ms King’s affidavit refers to correspondence which has passed between ASIC’s solicitors and DMAW Lawyers (DMAW). DMAW acted for the plaintiffs during the relevant period. Annexed to Ms King’s affidavit are engagement letters between the plaintiffs and DMAW and schedules of invoices for legal services provided by DMAW to the plaintiffs.
ASIC tendered affidavits of 10 insolvency practitioners who deposed to their hourly rates during the relevant period and whether they generally charged for the time spent travelling in respect of formal appointments. These practitioners were as follows:
(1)Mr James Michael White, partner in the firm, BDO, in the “Business Restructuring” practice group. Mr White works in Sydney where the group has two partners and 12 employees;
(2)Mr Alan Geoffrey Scott, partner in the firm, BRI Ferrier (SA). Mr Scott works in Adelaide where there are 2–3 partners, 2–3 directors, and between 20 and 34 employees;
(3)Mr Michael John Morris Smith, partner of Smith Hancock. Mr Smith works in Parramatta where there are two partners and 16 employees;
(4)Mr Austin Robert Meerten Taylor, partner in the firm, Meertens Chartered Accountants. Mr Taylor works in Adelaide where there are three registered and official liquidators and 17 employees;
(5)Mr Mark Anthony Korda, partner in the firm, KordaMentha. Mr Korda works in Melbourne. The firm has offices in four capital cities, more than 20 registered liquidators in Australia and about 370 employees;
(6)Mr Daniel Bryant, chief executive officer in the firm, PPB Advisory. Mr Bryant works in Sydney. The firm has offices in four capital cities and about 20 partners in the restructuring, turnaround and insolvency practice group. The firm has a set of rates for general matters and a different set for large and complex matters;
(7)Mr Alan John Hayes, founding principal of the firm, Hayes Advisory. Mr Hayes works in Sydney. The firm has one office in Sydney with nine employees;
(8)Ms Robyn Beverley McKern, partner of the firm, McGrathNicol. Ms McKern works in Melbourne. The firm has offices in five capital cities and during the period between 2010 and 2015, it had about 20–25 partners active in the restructuring and insolvency area;
(9)Mr Matthew James Byrnes, national head of the restructuring practice of Grant Thornton Australia. Mr Byrnes works in Melbourne. The firm has offices in five capital cities and about 15 registered liquidators; and
(10)Mr Brian Raymond Silvia, principal of the firm, BRI Ferrier (NSW). Mr Silvia works in Sydney. Between 2010 and 2015, the Sydney practice had up to 60 employees, 5‑6 principals, 2–3 consultants and, at any given time, 7–8 registered liquidators.
None of these insolvency practitioners were required for cross-examination. ASIC provided a schedule for each of the years from 2010 to 2014 which it said reflected the evidence of the hourly rates of the insolvency practitioners. I have checked the schedules against the evidence and I am satisfied that they are accurate. The schedules are annexed to these reasons as Annexure A.
ASIC adduced evidence from Mr Peter Gothard who is the managing partner at Ferrier Hodgson in Sydney. Mr Gothard has expertise in insolvency administrations and, by reference to a standard described by him as that of a competent and prudent insolvency practitioner (CPIP), he addresses questions relevant to the work carried out by the plaintiffs and in respect of which they claim remuneration. Mr Gothard prepared a detailed report dated 27 October 2016 and a report in reply to Mr Sheahan’s affidavit affirmed on 28 March 2017. The plaintiffs objected to Mr Gothard’s evidence on the ground that it was not relevant and on the ground that he lacked the qualifications necessary to give the expert opinion evidence which he purports to give. I overruled those objections and received Mr Gothard’s reports. My reasons for that ruling are as follows. Mr Gothard’s principal report addresses two questions. Those questions are as follows:
1.In the circumstances known to the Practitioners would a competent and prudent insolvency practitioner [CPIP] have carried out the work in respect of which the Practitioners claim remuneration?
2. If so:
(a) to what extent would a CPIP have carried out the work?
(b)would a CPIP have carried out the work deploying persons of the apparent seniority as deployed by the Practitioners? (In answering this question please consider the hourly rates charged by the Practitioners’ firm for the relevant personnel).
Mr Gothard described a CPIP as an insolvency practitioner who acts materially in compliance with the law and applicable professional standards (both mandatory requirements and recommended behaviours) and acts with due regard to the interests of parties to whom he or she owes duties. The applicable professional standards to which Mr Gothard referred are the APES 330 issued by the Accounting Professional and Ethical Standards Board and the Insolvency Practitioners Association of Australia (IPAA) Code of Professional Practice (COPP) (current versions are now known as the Australian Restructuring Insolvency & Turnaround Association (ARITA) Code of Professional Practices).
Mr Gothard addresses the four work streams of Debt and Equity Issues; potential claims against directors and ANZ; issues arising under the POC Act, and applications relating to the receivers. He summarises his opinions on the questions he is asked in a table which I annexe to these reasons as Annexure B.
In his report in response, Mr Gothard sets out the extent to which he modifies his opinions, having regard to the matters set out in Mr Sheahan’s second affidavit.
As to the first ground of objection, the plaintiffs submitted that Mr Gothard had addressed an irrelevant question in that the issue in this case is not what work would be carried out by a CPIP. The issue in this case is in what amount the Court should fix or determine the plaintiffs’ remuneration and, in determining that issue, the Court must have regard to whether the remuneration is reasonable, taking into account the matters identified in ss 449E(4) and 473(10). I rejected this ground because it seemed to me that, having regard to the matters identified in ss 449E(4) and 473(10), particularly the issue of whether work was reasonably necessary, the evidence of what work a CPIP would do and in what circumstances was likely to be of assistance. As to the second ground of objection, the plaintiffs submitted that Mr Gothard did not have the expertise to provide an opinion as to what would be done by a CPIP.
The plaintiffs referred the Court to, among other cases, the decision of Brereton J in Lucantonio v Kleinert [2009] NSWSC 853 and, in particular, the summary of relevant principles at [8]. The following three are relevant:
(1)In a professional negligence case, expert evidence is admissible of an accepted or standard professional practice, conduct or standard. Expert evidence is also admissible of what is commonly considered professional practice of competent and careful professionals in the field.
(2)Expert evidence is not admissible of what the expert would himself or herself have done in the circumstances, at least if that evidence is tendered to support the inference that other careful and competent professionals would have done the same things professionally; nor is expert evidence admissible of what as a matter of law reasonable care is required; that is a question of law for the Court and not for an expert.
(3)Expert evidence of what a competent and prudent practitioner would have done in the particular circumstances of the defendant is not admissible if, in effect, it is no more than one professional commenting on the conduct of another, at least in the absence of evidence that the expert has additional training, study or experience to demonstrate the acquisition of specialist knowledge of what a competent and prudent practitioner would do. However, expert evidence of what a competent and prudent practitioner would have done in certain circumstances may have been admissible if the witness has by training or experience such additional special qualifications or experience as to equip him or her to give evidence with competence of what the general body of competent and general practitioners would do.
The plaintiffs submitted that the evidence of Mr Gothard was no more than one professional commenting on the conduct of another, and that “there is no evidence that Mr Gothard has additional training, study or experience to demonstrate the acquisition of specialist knowledge of what a competent and prudent practitioner would do”. I rejected this submission because I considered that Mr Gothard did have the necessary additional training, study or experience to demonstrate the acquisition of specialist knowledge of what a CPIP would do.
Mr Gothard started his career in 1987 and he has worked continuously in the field of insolvency since that time. That is a period of 30 years. He has worked in Australia, New Zealand, the United States, South East Asia and Japan. He has worked for and alongside a number of very experienced insolvency practitioners from his firm. He has also been involved in joint appointments and has had the opportunity to observe and note the conduct of insolvency practitioners from other firms. He has an undergraduate degree in business majoring in accounting and he completed the professional year of the Institute of Chartered Accountants. He is a registered company liquidator. He has completed a Masters of Business Administration and a global insolvency practice course which is conducted by INSOL International, an organisation which focusses on international insolvency and particularly cross-border issues with the model law and European Insolvency Regulations and resolution of disputes across borders. Mr Gothard is the managing partner of the Sydney office of Ferrier Hodgson.
Mr Gothard’s practice deals with large and complex insolvencies. The complexity arises from the fact that the business and business structures are complex. He has often been involved in matters where the capital structure or the creditors’ structure is complicated or where there are a number of difficulties or disputes associated with the particular matter. There is a need for particular expertise. The matters that he has been involved in often involve cross-border elements, international business and matters of that nature. Since becoming a registered liquidator, Mr Gothard has completed approximately 50 administrations, of which approximately 20 would qualify as large and complex.
Mr Gothard was cross‑examined by counsel for the plaintiffs. He was a satisfactory witness, although I do not accept all of his expert opinions.
Finally, ASIC adduced evidence from Mr Bradley D Sharp. Mr Sharp is the President and Chief Executive Officer of Development Specialists Inc. At the relevant time, Mr Sharp was a senior managing director. Development Specialists Inc provides insolvency and restructuring services, among other services. Mr Sharp has worked in the bankruptcy and insolvency industry for more than 20 years and he has worked in the bankruptcy and insolvency industry for more than 20 years. On 14 May 2009, Mr Sharp was appointed the Chapter 11 Trustee in Bankruptcy of SK Foods, LP, and the United States Bankruptcy Court approved his appointment on 18 May 2009. He claimed that SK Foods, LP owned 100 of the 101 issued shares in SKFA. Mr Sharp swore an affidavit which was received as his evidence-in-chief and he was cross-examined by counsel for the plaintiffs. Mr Sharp was a satisfactory witness.
THE KEY EVENTS IN THE ADMINISTRATIONS AND LIQUIDATIONS
The facts in this matter are many and complex. It is convenient to start with a manageable chronology. Later in these reasons, it will be necessary for me to examine the facts in particular areas in a good deal more detail.
I will adopt the chronology of events which was annexed to the plaintiffs’ written outline of opening submission with such changes as I consider necessary.
(1)In early 2009, Mr Salyer was arrested and charged with racketeering. SK Foods, LP’s financiers, led by the Bank of Montreal (BMO), moved against the assets of the company and the company sought Chapter 11 bankruptcy protection, resulting in the appointment of Mr Sharp as trustee in bankruptcy.
(2)In about mid-2009, the New Zealand Companies, which companies shared common directors and management with the Companies and which were owned by interests associated with Mr Salyer, breached their banking covenants with ANZ NZ.
(3)As a condition of the provision of continued banking support to the New Zealand Companies, the Companies and the New Zealand Companies entered into a guarantee in July 2009 by which they cross-guaranteed each other entities’ debts.
(4)In October 2009, the New Zealand Companies again defaulted on their banking covenants and failed to remedy such defaults. ANZ NZ appointed receivers in November 2009.
(5)On 6 May 2010, the plaintiffs were appointed joint and several administrators of each of SKFA, CJVA and SSFA by reason of a resolution passed by the company’s directors pursuant to s 436A of the Act. The plaintiffs were also appointed liquidators over the New Zealand Companies.
(6)On or around 23 July 2010, the plaintiffs provided the Companies’ creditors with reports for the purposes of s 439A of the Act. Those reports:
(a)provided creditors with information as to the reasons for the financial difficulties of the Companies;
(b)informed creditors that the identity of the shareholders of SKFA was a matter that may need to be determined in the liquidation of SKFA;
(c)informed creditors of their investigations into the Companies’ affairs, including their communications with the receivers, financier, directors and certain creditors;
(d)provided creditors with a report of the Companies’ financial position;
(e)provided an overview of the plaintiffs’ consideration of potential legal claims; and
(f)provided creditors with a schedule of their firm’s standard charge out rates and set out the remuneration for which the plaintiffs proposed to seek the approval of creditors.
(7)On 23 July 2010, the plaintiffs learned from the receivers that the business assets of the Companies were to be sold for $91 million, resulting in a substantial surplus of funds after payment of the secured debt and receivers fees. The receivers provided warranties to the purchaser of the Companies’ assets for a period of 6 months.
(8)On or around 29 July 2010, the plaintiffs provided the Companies’ creditors with a supplementary report for the purposes of s 439A of the Act. That report informed the Companies’ creditors that:
(a)the receivers had entered into an agreement to sell the business assets of the Companies for $91 million, meaning that there would be a substantial surplus following the payment of creditors;
(b)the receivers had provided the purchaser with warranties for a period of 6 months following the anticipated completion of the sale on 30 July 2010; and
(c)the sale of the business assets would likely lead to a capital gains tax liability being incurred by the company.
(9)In or around August 2010, following the review of books and records of the Companies, the plaintiffs considered the existence and viability of potential claims against the former directors of the Companies and the Companies’ financier, ANZ. They sought advice from solicitors and counsel.
(10)On or around 3 August 2010, the plaintiffs became aware of the existence of a dispute concerning the ownership of the shares in SKFA and a debt owed by SKFA of approximately $17 million.
(11)At meetings of the Companies’ creditors held 11 August 2010:
(a)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 6 May 2010 to 9 July 2010 in the amount of $205,788.79 plus GST. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution;
(b)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 10 July 2010 to 6 August 2010 in the amount of $168,539.20 plus GST. The creditors present at that meeting voted to carry that resolution, save for Mr Shepard for the receivers of SKFA and CJVA who abstained;
(c)Mr Cary Collins, moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 6 May 2010 to 9 July 2010 in the amount of $6,520.91 plus GST. The creditors present at that meeting unanimously voted to carry that resolution; and
(d)Mr Collins moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 10 July 2010 to 6 August 2010 in the amount of $12,633.32 plus GST. The creditors present at that meeting voted to carry that resolution, save for Mr Shepard for the receivers of SKFA, SSFA and ANZ, who abstained;
(e)Mr Sharp moved a resolution that SKFA and CJVA be placed into liquidation and that the plaintiffs be appointed as joint and several liquidators of each. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution;
(f)Mr Neal Alexander, moved a resolution that SSFA be placed into liquidation and that the plaintiffs be appointed as joint and several liquidators of each. The creditors present at that meeting unanimously voted to carry that resolution;
(g)Mr Sharp moved a resolution that the remuneration of the plaintiffs (as liquidators of SKFA and CJVA) for the period from the commencement of the liquidation to the completion of the liquidation shall be a sum equal to the cost of time spent by the plaintiffs, partners and staff, calculated at the rates detailed in the schedule of charge out rates as provided to creditors in the recent report. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution; and
(h)Mr Collins moved a resolution that the remuneration of the plaintiffs (as liquidators of SSFA) for the period from the commencement of the liquidation to the completion of the liquidation shall be a sum equal to the cost of time spent by the plaintiffs, partners and staff, calculated at the rates detailed in the schedule of charge out rates as provided to creditors in the recent report. The creditors present at that meeting unanimously voted to carry that resolution;
(12)On or around 2 November 2010, the plaintiffs provided the Companies’ creditors with reports on the progress of the liquidations. Those reports:
(a)confirmed to creditors that the identity of the shareholders of SKFA was a matter that would need to be determined prior to any distribution being made to shareholders;
(b)informed creditors of the efforts the plaintiffs had made to collect and review the Companies’ books and records;
(c)informed creditors of the plaintiffs’ communications with the receivers, concerning their release of the proceeds of the sale of the business assets and their retirement;
(d)informed creditors of the plaintiffs’ efforts to quantify the Companies’ capital gains tax liabilities following the sale of their business assets;
(e)provided creditors with a report of the Companies’ financial position; and
(f)set out the remuneration for which the plaintiffs proposed to seek creditor approval.
(13)At a joint meeting of the creditors of SKFA and CJVA held on 17 November 2010:
(a)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 7 August 2010 to 10 August 2010 in the amount of $31,746.67 plus GST. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution;
(b)Mr Sharp moved a resolution that the plaintiffs’ fees (as liquidators of SKFA and CJVA) be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $550,000 plus GST, noting that this represented a write off of just under $100,000 from the work in progress (WIP) incurred and referred to in the report to creditors. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution; and
(c)Mr Sharp moved a resolution that the plaintiffs be authorised to draw down fees to a limit of $125,000 plus GST per month. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution.
(14)At a meeting of the creditors of SSFA held on 17 November 2010:
(a)Mr Collins moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 7 August 2010 to 10 August 2010 in the amount of $217.50 plus GST. The creditors present at that meeting voted to carry that resolution; and
(b)Mr Collins moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $93,061.83 plus GST. The creditors present at that meeting voted to carry that resolution.
(15)In November and December 2010, the plaintiffs met with stakeholders regarding the Debt and Equity Issues.
(16)In February 2011, the warranty period in the sale and purchase agreement under which the receivers sold the assets of the Companies expired. The plaintiffs called for the receivers to retire, however, the receivers refused.
(17)In March 2011, settlement discussions between Mr Sharp and the Salyer interests took place in an effort to resolve the dispute surrounding the Debt and Equity Issues.
(18)On 4 May 2011, Mr Sharp commenced proceedings in the United States Bankruptcy Court in relation to, inter alia, the Debt and Equity Issues. Those proceedings were stayed, along with all other proceedings against Mr Salyer and his interests, whilst the criminal indictments against Mr Salyer were on foot.
(19)On or around 28 June 2011, the plaintiffs provided the creditors of SSFA with a report on the progress of the liquidation. That report:
(a)informed creditors of the efforts the plaintiffs had made to collect and review the books and records of SSFA and their consideration of the cross-guarantees;
(b)informed creditors of the plaintiffs’ communications with the receivers concerning their release of the proceeds of the sale of the business assets and their retirement;
(c)informed creditors of the declaration of a first dividend on 26 December 2010;
(d)informed creditors of the plaintiffs’ efforts to quantify the Companies’ capital gains tax liabilities following the sale of their business assets;
(e)provided creditors with a report of the financial position of SSFA; and
(f)set out the remuneration for which the plaintiffs proposed to seek creditor approval.
(20)At a meeting of the creditors of SSFA held on 15 July 2011:
(a)Mr Michael DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 1 November 2010 to 20 June 2011 in the amount of $226,945.83 plus GST. The creditors present at that meeting voted to carry that resolution;
(b)Mr DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 21 June 2011 to 30 June 2011 in the amount of $16,420.84 plus GST. The creditors present at that meeting voted to carry that resolution; and
(c)Mr DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved prospectively at up to $50,000 plus GST per month, form 1 July 2011 to 30 June 2012, with any amount above that requiring further approval by creditors, a committee of inspection or the Court in due course. The creditors present at that meeting voted to carry that resolution.
(21)In July and October 2011, the plaintiffs undertook examinations in New Zealand of former directors and executives of the Companies, the Companies’ former solicitor and the relationship manager from ANZ.
(22)The plaintiffs undertook depositions in the United States in August 2011 of former executives of SK Foods, LP and the auditors of SK Foods, LP.
(23)In September 2011, the plaintiffs conducted examinations of former directors of the Companies, Mr Harry Heath and Mr Richard Lawrence, in the Federal Court of Australia and obtained production from the Companies’ former solicitors along with ANZ and ANZ’s solicitors.
(24)In October 2011, the plaintiffs engaged in further correspondence with the receivers regarding the finalisation of the receivership. The plaintiffs were advised by the receivers that they were seeking a tax ruling from the Australian Taxation Office (ATO).
(25)In November 2011, the plaintiffs engaged in further correspondence with the receivers seeking that they retire or resign as receivers of the Companies.
(26)On 30 November 2011, the receivers brought an application in the Supreme Court of Victoria seeking directions that they were justified in not retiring. On 23 December 2011, the plaintiffs commenced proceedings seeking orders that the receivers be removed.
(27)In November 2011, the plaintiffs obtained advice regarding the debt issue from their solicitors.
(28)On or around 5 December 2011, the plaintiffs provided the creditors of SKFA and CJVA with a joint report on the progress of the liquidations. That report:
(a)informed creditors of the efforts the plaintiffs had made to collect and review the books and records of SKFA and CJVA;
(b)provided creditors with an update on the plaintiffs’ investigations into the Debt and Equity Issues and explained what further investigations they proposed to undertake;
(c)provided creditors with an update on their investigations into the cross‑guarantees;
(d)explained the events leading up to the receivers applying to the Court for directions that they were justified in not retiring;
(e)informed creditors of the plaintiffs’ consideration of taxation matters effecting SKFA and CJVA;
(f)informed creditors that the plaintiffs were keeping the US Department of Justice informed of any significant developments in the winding up of SKFA and CJVA and their related investigations;
(g)informed creditors of the declaration of a first and final dividend on 22 December 2010 in the winding ups of SKFA and CJVA;
(h)provided creditors with a report of the financial position of SKFA and CJVA;
(i)set out the remuneration for which the plaintiffs proposed to seek creditor approval; and
(j)informed the creditors of SKFA and CJVA of a meeting proposed to be held on 21 December 2011 (that meeting was ultimately adjourned to 9 March 2012).
(29)In December 2011, the plaintiffs obtained advice from senior counsel to the effect that the Disputed Debt had not been validly assigned. On the basis of counsel’s advice, the plaintiffs proceeded to admit the proof of debt lodged by Mr Sharp in relation to the Disputed Debt subject to set-off. The plaintiffs thereafter proceeded to admit proof of debt of Mr Sharp subject to set-off. Mr Sharp appealed against the set-off and the Salyer interests appealed against the rejection of their proofs of debt.
(30)In December 2011, the plaintiffs received proofs of debt in relation to the shares in SKFA, and thereby claims in respect of funds, from Mr Sharp and the Salyer interests.
(31)By January 2012, further information had come to light that caused the plaintiffs to doubt their adjudication on the Disputed Debt. As a result, the plaintiffs sought alternative advice in February 2012 from senior counsel, which advice suggested the Disputed Debt had been validly assigned and thereby the plaintiffs’ adjudication was incorrect.
(32)In early 2012, the plaintiffs informed Mr Sharp that their present view was that the “Spin Off” was a legitimate transaction.
(33)On or around 17 February 2012, the plaintiffs provided the creditors of SKFA and CJVA with a further joint report on the progress of the liquidations. That report:
(a)provided the creditors of SKFA and CJVA with a further update on the plaintiffs’ investigations into both companies’ affairs;
(b)provided creditors with an update on the plaintiffs’ investigations into the Debt and Equity Issues and explained that they had sought further advice as to the effect of the material collected through their investigations;
(c)informed creditors of the application brought by the plaintiffs for the removal of the receivers;
(d)provided creditors with an update on the plaintiffs’ consideration of taxation matters effecting SKFA and CJVA;
(e)provided creditors with an update on the adjudication of outstanding creditor claims;
(f)informed creditors of an expected surplus payable to shareholders of SKFA of approximately $35 million; and
(g)set out the remuneration for which the plaintiffs proposed to seek creditor approval.
(34)On 20 February 2012, Mr Sharp commenced proceedings in the New South Wales District Registry of the Federal Court seeking declarations as to the ownership of the shares in SKFA (Equity Proceedings) along with other orders, including a review of the plaintiffs’ remuneration. The plaintiffs defended themselves in those proceedings and sought their transfer to the South Australia District Registry. Mr Sharp abandoned his application for review of the plaintiffs’ remuneration on 28 March 2012.
(35)At a meeting of the creditors of SKFA held on 9 March 2012:
(a)SK Foods, LP was admitted to vote with respect to its claim to the Disputed Debt (subject to a set-off), which claim had been formally admitted by the plaintiffs, but which claims they doubted at the time given the receipt of further information as referred to above;
(b)the entities associated with Mr Salyer were admitted to vote with respect to their claims to the Disputed Equity, which claims were still to be formally admitted but which the plaintiffs believed to be valid at the time;
(c)Mr Sharp objected to the admission of the claims of the entities associated with Mr Salyer for voting purposes, and his solicitor, Ms Jill Milburn, informed the meeting that Mr Sharp would seek to challenge the admission in the courts;
(d)Mr Stephen Polczynski, the solicitor for the entities associated with Mr Salyer, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) which the plaintiffs were authorised by resolution of creditors on 17 November 2010 to draw down in the sum of $125,000 plus GST per month, being the total sum of $1,875,000 plus GST covering the period from 1 November 2010 to 31 January 2012, be fixed and approved in that amount. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against;
(e)Mr Kevin Smith, the representative of the Deputy Commissioner of Taxation, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) be fixed and approved for the period from 1 November 2010 to 31 January 2012 in the amount of $346,384.43 plus GST. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against; and
(f)Mr Smith, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) be fixed and approved for the period from 1 February 2012 to 29 February 2012 in the amount of $137,323.41 plus GST. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against; and
(g)Mr Polczynski, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) in a sum not exceeding $125,000 plus GST per month, be approved and paid out of the liquidation of SKFA for the period 1 March 2012 to 31 October 2012, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against and Mr Smith who abstained.
(36)By April 2012, it had become clear to the plaintiffs that Mr Sharp did not want the plaintiffs to continue to investigate the Potential Claims against the Directors and ANZ. The plaintiffs sought the input from the Salyer interests who agreed the plaintiffs should cease incurring fees in relation to such investigations. On the basis of the communications from the interested parties, the plaintiffs suspended their investigations.
(37)In June 2012, the stay of proceedings against Mr Salyer was lifted in the United States of America. Accordingly, Mr Sharp was free to pursue proceedings against the Salyer interests.
(38)On 4 June 2012, Emmett J in the Equity Proceedings indicated that he would be assisted if the plaintiffs acted as contradictors on Mr Sharp’s applications and to file a notice of contentions.
(39)In August 2012, the plaintiffs were advised that Mr Sharp was pursuing summary judgment against the Salyer interests in relation to the Debt and Equity Issues in the United States. The plaintiffs proposed that there be no further action in the Equity Proceedings. Mr Sharp insisted that the plaintiffs proceed to prepare their notice of contentions. The plaintiffs’ notice of contentions was filed on 10 September 2012.
(40)In early September 2012, the plaintiffs first considered that the funds held by them in the liquidation may be the proceeds of crime. Following the receipt of advice, the plaintiffs referred the matter to ASIC. The plaintiffs then met with ASIC and representatives of the Australian Federal Police (AFP), to whom the plaintiffs understood ASIC had referred the matter. The plaintiffs provided documents and information to the AFP as requested and in response to a formal notice issued by the Magistrates Court of Western Australia on the application of the AFP in October 2012.
(41)On or around 16 October 2012, the plaintiffs provided the Companies’ creditors with reports on the progress of the liquidations. Those reports:
(a)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ efforts to obtain the production of documents relevant to their affairs in the United States;
(b)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ investigations into the ownership of the Disputed Debt, explained why they had revoked their initial adjudication and provided an overview of the Court proceedings concerning the identity of the correct owner(s);
(c)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ investigations into the ownership of the Debt and Equity Issues and provided an overview of the Court proceedings concerning the identity of the correct owner(s);
(d)provided creditors with an update on the proceedings concerning the removal of the receivers;
(e)provided creditors with an update on the plaintiffs’ adjudication and payment of remaining claims in the winding up of the Companies;
(f)informed creditors of an expected surplus payable to the shareholders of SKFA of approximately $40 million; and
(g)set out the remuneration for which the plaintiffs proposed to seek creditor approval.
(42)At the meeting of the creditors of SKFA held on 1 November 2012:
(a)SK Foods, LP was admitted to vote with respect to its claim to the Disputed Debt (subject to a set-off), which claim had been formally admitted by the plaintiffs but which they doubted at the time, given the receipt of further information as referred to above;
(b)the entities associated with Mr Salyer were admitted to vote with respect to their claims to the Disputed Equity, which claims were still to be formally admitted but which the plaintiffs believed at the time to be valid; and
(c)Mr Polczynski, the solicitor for the entities associated with Mr Salyer, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) in a sum not exceeding $50,000 plus GST per month, be approved and paid out of the liquidation of SKFA for the period from 1 November 2012 to 31 October 2013, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution save for Mr Michael Rose, the solicitor for SK Foods, LP, who voted against it.
(43)At the meeting of the creditors of SSFA held on 1 November 2012:
(a)Mr Polczynski, moved a resolution that the plaintiff’ fees (as liquidators of SSFA) for the period 1 July 2012 to 30 September 2012 be fixed and approved in the sum of $7,895.01 plus GST. The creditors present at that meeting voted to carry that resolution; and
(b)Mr Polczynski, moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) in a sum not exceeding $10,000 plus GST per month, be approved and paid out of the liquidation of SSFA for the period from 1 October 2012 to 31 October 2013, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution.
(44)In late November 2012, Mr Sharp obtained summary judgment against the Salyer interests in the United States in relation to, inter alia, the Disputed Debt and the Disputed Equity, and he then applied for recognition of that judgment in the proceedings before Emmett J. In relation to the application for recognition, Emmett J requested that the plaintiffs act as contradictors. Mr Sharp did not speak against the plaintiffs acting as contradictors and his Honour made an order to that effect.
(45)Following a hearing, Mr Sharp’s application for recognition was refused by Emmett J on 19 December 2012. Mr Sharp amended the relief sought in the Equity Proceedings to cure the defect underlying Emmett J’s refusal to grant recognition, including the joinder of all of the Salyer interests. Mr Sharp subsequently sought summary judgment in the Equity Proceedings and a trial proceeded before Flick J in March 2013. The plaintiffs were not involved in the trial.
(46)In April 2013, the plaintiffs participated in further meetings with the AFP and provided further information as requested.
(47)On 15 May 2013, the AFP commenced proceedings in the Supreme Court of Victoria pursuant to the POC Act seeking, inter alia, forfeiture of the surplus assets held by the plaintiffs to the Commonwealth (the POC Act Proceedings).
(48)On 30 May 2013, Flick J gave judgment in the Equity Proceedings in Mr Sharp’s favour, in effect granting summary judgment in relation to the Disputed Debt and the Disputed Equity (SK Foods LP v SK Foods Australia Pty Ltd (in liq) (No 3) [2013] FCA 526; (2013) 214 FCR 543). In other words, the application by SK Foods, LP and Mr Sharp was successful.
(49)On 10 July 2013, Mr Sharp brought an application in the New South Wales District Registry of the Federal Court seeking orders for the removal of the plaintiffs and for a review of their remuneration. Mr Sharp nominated two of Mr Gothard’s business partners at Ferrier Hodgson as replacement liquidators. The application was opposed by the AFP.
(50)In November 2013, a resolution of all of the outstanding issues in the liquidations was reached with the various stakeholders. Specifically, the settlement resolved the POC Act proceedings, the proceedings relating to the receivers and the application to remove and replace the plaintiffs and review their remuneration. A Deed of Settlement was entered into that provided for:
(a)according to the plaintiffs, a release in favour of the plaintiffs in relation to their conduct and remuneration claimed to date;
(b)remuneration for the plaintiffs up to an amount of $750,000; and
(c)the submission of a consent order to the Supreme Court of Victoria that the entirety of the surplus funds held by the plaintiffs be forfeited to the Commonwealth and then on forwarded to:
(i)Mr Robert Greeley (as receiver appointed by the United States Bankruptcy Court) with respect to 90% of 1 of 101 shares in SKFA, less an amount $100,000; and
(ii)SK Foods, LP and Mr Sharp with respect to 90% of 100 of 101 shares in SKFA.
(iii)The 10% balance of the surplus funds was retained by the Commonwealth.
(51)The plaintiffs proceeded to draw remuneration up to the $750,000 cap. Mr Sharp objected to the drawing of such remuneration, asserting that the deed did not operate as approval of remuneration. In consequence, the plaintiffs repaid the amounts drawn. On 29 August 2014, the plaintiffs entered into a subsequent Deed of Settlement with Mr Sharp which, according to the plaintiffs, resolved all issues, including the remuneration after November 2013.
(52)On or about 24 September 2014, the plaintiffs provided the Companies’ creditors with a joint report on the progress of the liquidations. That report:
(a)informed creditors of the retirement of the receivers;
(b)informed creditors of the deed of release entered into on 9 September 2014;
(c)explained to creditors how the Companies’ taxation affairs had been finalised;
(d)informed creditors of a personal injury claim made against SKFA and CJVA, which claim was covered by their insurers; and
(e)set out the remuneration for which the plaintiffs proposed to seek creditor approval.
(53)At the meeting of the creditors of the Companies held on 21 October 2014, Mr David Porter, the solicitor for Mr Sharp and SK Foods, LP, moved a resolution that the plaintiffs’ remuneration for the period from 19 November 2013 to 12 September 2014 for the liquidations of the Companies be approved in the total amount of $100,000 inclusive of GST. The only creditor present at that meeting, SK Foods, LP, voted to carry that resolution.
The Deeds of Settlement identified in (50) and (51) above are discussed in detail in my reasons for judgment on an interlocutory application in this proceeding (Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) [2017] FCA 1306 at [28]–[48]).
There are essentially three issues which are the subject of the balance of these reasons. They are as follows:
(1)Have the plaintiffs contravened s 449(7) (administration) and s 499(7) (liquidation) of the Act?
(2)If so, should there be an order under s 1322(4)(a) in relation to such contraventions?
(3)If no to (2), in what amount should the plaintiffs’ remuneration be fixed?
THE CONTRAVENTIONS OF S 449E(7) (ADMINISTRATION) AND S 499(7) (LIQUIDATION)
In one sense, it is not necessary to spend a great deal of time on this issue because the plaintiffs admit contraventions. However, it is important to identify the nature of those contraventions as precisely as possible.
The facts give rise to four possible categories of contraventions of s 449E(7) (administration) and s 499(7) (liquidation) of the Act. They are as follows:
(1)Creditors’ resolutions preceded by “inadequate” remuneration reports. Inadequate is not the statutory term, but it is a convenient way of describing reports which fail to comply with the requirements of the subsections;
(2)Creditors’ resolutions where there was no remuneration report for the whole period. Mr Lock used the term, “stub period” to describe a period between the provision to creditors of a remuneration report and the holding of a creditors’ meeting. There was no remuneration report for this period;
(3)Creditors’ resolutions granting approval for fees to be incurred up to a certain limit which, sometime later, were followed by a remuneration report which covered most, but not all, of the subsequent period; and
(4)One period – 19 November 2013 to 12 September 2014 – for which, according to the plaintiffs’ application and Mr Lock’s first affidavit, there was no creditors’ resolution. I have reached the conclusion that s 1322(4)(a) of the Act is not engaged in this case in respect of all periods. An additional reason it is not engaged in the case of the period between 19 November 2013 to 12 September 2014 is that, absent a creditors’ resolution, there is no act, matter or thing or proceeding instituted or taken within s 1322(4)(a). It appears that there was a resolution about remuneration for the period presently under consideration at the meeting of creditors of the Companies on 21 October 2014 and it is not clear what position the plaintiffs take with respect to this resolution. In any event, it does not matter because it was preceded by an inadequate remuneration report and, for reasons I will give, s 1322(4)(a) was not engaged as to any of the periods.
I turn to consider the circumstances relating to the above periods.
On 29 April 2015, ASIC wrote to the plaintiffs advising them that it considered that they had failed to comply with the requirements of s 449E(7) and s 499(7) of the Act. ASIC identified various failures which it characterised in three ways. First, there were cases where resolutions were not preceded by a remuneration report. These were as follows: (1) with respect to SKFA and CJVA for 10 July 2010 to 6 August 2010, and 1 February 2010 to 29 February 2012; and (2) with respect to SSFA for 10 July 2010 to 6 August 2010, and 21 June 2011 to 30 June 2011. As I understand it, these are the stub periods to which Mr Lock referred. The total amount for these periods is $334,916.77. Secondly, there were cases where the resolutions were passed in circumstances in which the remuneration report did not cover the period of the creditors’ remuneration resolution. These were: (1) with respect to SKFA and CJVA for 1 March 2012 to 31 October 2012, and 1 November 2012 to 31 October 2013; and (2) with respect to SSFA for 1 July 2011 to 30 June 2012, and 1 October 2012 to 31 October 2013. The total amount for these periods is $2,018,077.03. Thirdly, there were cases where the remuneration reports were inadequate.
On 29 May 2015, the plaintiffs wrote to ASIC acknowledging the alleged failures, but also offering some comments seeking to explain why they had acted in the way in which they had.
ASIC’s case was that the total amount for cases in which the plaintiffs failed to provide to creditors a remuneration report in respect of the relevant period before they voted upon remuneration resolutions is $2,352,993.80 and the total amount for cases in which inadequate remuneration reports were provided is $3,328,927.55.
At one level, ASIC’s submission is correct and was accepted by Mr Lock in Schedule A of his first affidavit. However, the plaintiffs submit that periods for which there was no remuneration report before or after the relevant resolution are limited to the stub periods which, as I have said, involve a total amount of $334,916.77. One example will suffice to illustrate the point. The creditors of SKFA and CJVA met on 9 March 2012 and passed the following resolution:
The liquidators’ fees, in a sum not exceeding $125,000 plus GST per month, be approved and paid out of the liquidation of SKFA for the period 1 March 2012 to 31 October 2012, with any fees exceeding that capped sum requiring separate approval.
The creditors were not given a remuneration report for that period prior to that resolution.
On or about 16 October 2012, the creditors of SKFA and CJVA were provided with a remuneration report for the period 1 March 2012 to 30 September 2012. At the creditors’ meeting of SKFA on 1 November 2012, it was considered that there was no need for a resolution with respect to remuneration for the period from 1 March 2012 to 31 October 2012 in light of the resolution passed on 9 March 2012. The following appears in the minutes of the meeting of 1 November 2012:
The chairman noted that the liquidators’ fees for the period from 1 March 2012 to 30 September 2012 were $814,080.29 plus GST and therefore did not exceed the capped sum, and that once October fees were added the total fees incurred for the period would still remain less than the amount approved for the period and hence the liquidators were not seeking approval for any excess fees.
For reasons I will give, I have decided that the remuneration reports provided to the creditors by the plaintiffs were inadequate so, to this extent, this difference between the parties does not matter. However, what the plaintiffs actually did will be relevant when I come to consider the application of s 1322 of the Act.
Returning to ASIC’s letter dated 29 April 2015 and the cases where it is contended that the remuneration reports were inadequate. With respect to these cases, ASIC makes general remarks with respect to all reports and then particular comments with respect to particular reports. Its general remarks may be summarised as follows. The remuneration reports allocated times between a number of categories of work and provided generic descriptions of the work undertaken. This has occurred despite the fact that in most cases the amount of remuneration claimed is substantial and the number of hours apparently spent by the practitioners is significant. ASIC also states that creditors would not have been able to assess from the information provided in the reports which staff member completed each task, at what hourly rate, and whether it was appropriate that the person in question complete the task. Nor would creditors have been able to assess whether a task when delegated, had been appropriately delegated. ASIC also makes the comment that the reports are inaccurate. Descriptions of the work apparently undertaken were clearly copied from earlier or other reports and, in some instances, comprised work that was not undertaken during the relevant period. For example, throughout the liquidators’ remuneration reports, there is continued reference to an application to extend the convening period and tasks that may have been undertaken by the plaintiffs as administrators. With respect to ASIC’s comments on particular remuneration reports, an example will suffice. At the creditors’ meeting of SKFA and CJVA held on 9 March 2012, remuneration of $1,875,000 for the period 1 November 2010 to 30 November 2011, and remuneration of $346,384.43 for the period 1 December 2011 to 30 January 2012 were approved. The total amount is approximately $2,220,000 for in excess of 3,800 hours of work over a 15 month period. It is apparent from the reports that much of that time was charged by the plaintiffs as the appointees personally. The two remuneration reports which are relevant to these periods are dated 5 December 2011 and 17 February 2012 respectively. ASIC’s letter identifies the following inadequacies in the reports:
(a)There is a one page summary of hours spent and the corresponding charges for each time period;
(b) the substantive part of each remuneration report is slightly less than 2 pages;
(c)the time and charges are divided between broad categories with generic descriptions which are largely identical to the descriptions in the earlier remuneration reports;
(d)the resolution was for a different amount ($1,875,000) to that claimed in the report ($2,745,945.30); and
(e)the report again contains descriptions of work which could not have been undertaken during this period, such as “preparing s 439A report and related tasks” and “liaising with solicitors regarding applications to court for extension of convening period. Application to court for remedy of defect in appointment”. Again, it seems the descriptions were simply copied from the earlier reports.
I turn now to examine the creditors’ meetings in more detail and the documents provided to creditors before and at each meeting. Before dealing with each meeting, it is convenient to identify the general nature of the documents which are relevant to some or all of the meetings.
The first type of document is an administrators’ or liquidators’ report to creditors. The practice was to have one report dealing with SKFA and CJVA, and one report dealing with SSFA. The reports provide details of the progress of the administration or liquidation, as the case may be, and major events in the administration or liquidation. The reports provide some details of the activities of the administrators and liquidators. They also provide details of the administrators’ or liquidators’ professional fees for which the creditors will be asked to provide their approval. The second type of document is the notice of meeting, formal proof of debt or claim (general form) and, in some cases, a proxy form. The third type of document is a summary of fees and disbursements for a particular period of time. The fourth type of document is the remuneration report which, described generally, sets out a description of work, a calculation of remuneration and general supporting information. The fifth type of document is a schedule of the hourly rates of the administrators or liquidators and staff members of their firm as at a particular date. Finally, there are the minutes of the creditors’ meetings.
The first creditors’ meeting for each of the companies was held on 18 May 2010. As part of an initial remuneration advice to creditors prior to the meeting, the plaintiffs advised the creditors of their hourly rates for partners, senior associates, associates, secretaries, junior staff and administration/clerical. The partner’s rate at that time was $525 per hour, the rate for senior associates was $450 per hour and the rate for an associate was $320 per hour.
The second creditors’ meeting during the administration was held on 11 August 2010. The plaintiffs as administrators arranged for a joint meeting of SKFA and CJVA, and a separate meeting of SSFA. They provided an administrators’ report to creditors dated 23 July 2010 which included a statement of their opinion that it would be in the creditors’ interests for the Companies to be placed into liquidation as there was no proposal for a deed of company arrangement and the receivers had disposed of the Companies’ tangible assets and operations. The plaintiffs also provided a remuneration report covering work done during the period from 6 May 2010 to 9 July 2010. The report divides the tasks into seven categories of which three, “Creditors”, “Investigation” and “Administration”, were relevant. In the case of each category, they provided a generic description of tasks and the number of hours and amount of remuneration claimed with respect to each task. The total number of hours in the case of SKFA and CJVA was 396.46 hours, and remuneration claimed was $205,788.79. Creditors were advised that disbursements were divided into three types.
The administrators addressed their professional fees in the joint report to creditors. They also provided the creditors with a summary of fees and disbursements for the period from 6 May 2010 to 9 July 2010. This document set out some details of the composition of the claim for remuneration of $205,788.79 in that it identifies the number of hours spent by the plaintiffs and three members of their staff and the total charges for those hours. For example, Mr Lock spent 98.46 hours on tasks associated with the administration leading to a charge of $54,716.68, and Mr Sheahan spent 218.28 hours leading to a charge of $127,443.78. There are similar documents in relation to SSFA.
There is a document which is a schedule of firm charge out rates from 1 July 2010. That shows an hourly rate for each of the plaintiffs of $700 per hour, an hourly rate for a senior manager of $500 per hour and an hourly rate for a manager of $450 per hour. I should mention that in Mr Lock’s second affidavit at paragraph 98, he identifies an hourly rate for a senior manager applicable as at 1 July 2010 of $550 per hour.
Mr Lock said, and I accept, that documents which he described as detailed work in progress ledgers for the period 10 July 2010 to 6 August 2010 were tabled by Mr Sheahan at the meeting on 11 August 2010. That occurred both in relation to the joint meeting of creditors of SKFA and CJVA, and the separate meeting of SSFA. Mr Lock said, and I accept, that copies of those ledgers were not retained. However, he produced printouts from the plaintiffs’ work in progress (WIP) records applicable to the same period and which he believed were in the same form as the ledgers tabled at the meeting. These WIP reports provide details of each partner or employee involved in the administration on a day-by-day basis with the period spent on a particular task and the charge made. In most cases, there is a brief description of the task carried out.
At the joint meeting of creditors of SKFA and CJVA, Mr Sharp, representing SK Foods, LP, proposed that the administrators’ fees be approved for the period from 6 May 2010 to 9 July 2010 in the amount of $205,788.79 plus GST. A resolution to that effect was carried. Mr Sharp also proposed that the administrators’ fees be approved for the period from 10 July 2010 to 6 August 2010 in the amount of $168,539.20 plus GST. A resolution to that effect was carried. A resolution was also carried to the effect that:
the remuneration of the liquidators for the period from the commencement of the liquidation to the completion of the liquidation shall be a sum equal to the cost of time spent by the liquidators, partners and staff, calculated at the rates detailed in the schedule of charge out rates as provided to creditors in the recent report.
At the creditors’ meeting of SSFA on the same day, resolutions were carried that the administrators’ fees be approved for the period from 6 May 2010 to 9 July 2010 in the amounts of $6,520.91 plus GST and $1,417.10 plus GST respectively, and for the period from 10 July 2010 to 6 August 2010 in the amounts of $12,633.32 and $1,323 plus GST respectively.
On 2 November 2010, the plaintiffs sent a liquidators’ joint report to creditors to the creditors of SKFA and CJVA. It is worth noting that it contained the following:
As discussed at the meeting of creditors on 11 August 2010, the public announcement was made on 23 July 2010 that Kagome Co Ltd (a Japanese company) (“Kagome”) had acquired the assets and operation of Cedenco JV Australia Pty Ltd (“Cedenco JV”), SK Foods Australia Pty Ltd (“SK Foods Australia”) and SS Farms Australia Pty Ltd for a combined price of $91m, with settlement to take place on 30 July 2010. The amount of the sale price allocated (by Kagome) to Cedenco JV and SK Foods Australia was $72.8m and the amount allocated to SS Farms was $18.2m.
We anticipated that the receivers would, after discharging the debt due to the secured creditor, the ANZ, be holding a substantial surplus which could be promptly passed to us, as liquidators of the Australian companies. This would be more than sufficient to meet all creditor claims of which we were aware, pay statutory post-liquidation interest on such claims, and provide adequate funds to allow proper investigation into the company’s affairs, including a review of any legal remedies available, whilst still ensuring a substantial initial return of capital to shareholders.
The joint report also contained a summary of fees from 7 August 2010 to 31 October 2010 and a schedule of the hourly rates. The hourly rate for a senior manager in the schedule is shown as $550 per hour. The plaintiffs also sent to creditors a remuneration report dated 3 November 2010 and covering the period from 7 August 2010 to 31 October 2010. WIP reports for the period from 7 August 2010 to 31 October 2010 were tabled at the meeting. A resolution was carried at the joint meeting of creditors held on 17 November 2010, that the administrators’ fees be approved for the period from 7 August 2010 to 10 August 2010 in the amount of $31,746.67 plus GST, and that the liquidators’ fees be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $550,000 plus GST. The resolution was proposed by Mr Sharp. Mr Sharp proposed a resolution that the liquidators be authorised to draw down fees to a limit of $125,000 plus GST per month with all fees, including any excess over the $125,000 per month to be approved at the next meeting of creditors. That resolution was carried.
There are similar documents for SSFA. Again, WIP reports were tabled at the meeting and in the case of SSFA, a resolution was carried that the liquidators’ fees be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $93,061.83 plus GST.
There was a meeting of the creditors of SSFA on 15 July 2011. A similar pattern in terms of the documents is followed in the case of this meeting, including a report to creditors, remuneration report for the period 1 November 2010 to 20 June 2011 and summary of fees and WIP reports for the period from 1 November 2010 to 20 June 2011.
In terms of the resolutions carried at the meeting, a resolution was carried that the liquidators’ fees for the period 1 November 2010 to 20 June 2011 in the amount of $226,945.83 plus GST be approved. A resolution was carried approving the liquidators’ fees for the period from 21 June 2011 to 30 June 2011 in the amount of $16,420.84 plus GST. Finally, a resolution was carried that the liquidators’ fees be approved prospectively at up to $50,000 plus GST per month from 1 July 2011 to 30 June 2012.
There was a joint meeting of creditors of SKFA and CJVA on 9 March 2012. There is a similar pattern with respect to the documents. There were two reports to creditors dated 5 December 2011 and 17 February 2012 respectively. There were two remuneration reports, both dated the same dates as the respective reports to creditors. WIP reports for the period from 1 November 2010 to 29 February 2012 were tabled at the meeting. A resolution was carried that the liquidators’ fees which the liquidators were authorised by resolution of creditors on 17 November 2010 to draw down in the sum of $125,000 plus GST per month, being the total sum of $1.875 million plus GST covering the period from 1 November 2010 to 31 January 2012, be fixed and approved in that amount. All creditors, except for Mr Sharp for SK Foods, LP, voted in favour of the resolution. Mr Sharp voted against the resolution. A resolution was carried that the liquidators’ fees from 1 November 2010 to 31 January 2012 in addition to those, the subject of the previous resolution, be fixed and approved in the sum of $346,384.43 plus GST was passed. All creditors, other than Mr Sharp who voted against the resolution, voted in favour of the resolution. A resolution was carried that the liquidators’ fees for the period from 1 February 2012 to 29 February 2012 be fixed and approved in the sum of $137,323.41 plus GST (and paid out of the liquidation of SKFA) was carried with Mr Sharp voting against the resolution. A resolution was carried that the liquidators’ fees in an amount not exceeding $125,000 plus GST per month be approved and paid out of the liquidation of SKFA for the period 1 March 2012 to 31 October 2012. Mr Sharp voted against the resolution.
There was a meeting of the creditors of SKFA on 1 November 2012. Again, there is a joint report to creditors of SKFA and CJVA dated 16 October 2012 and a remuneration report of the same date. There are similar documents for SSFA which also held a meeting on 1 November 2012. At the meeting of creditors of SKFA, a resolution was carried that the liquidators’ fees in a sum not exceeding $50,000 plus GST per month be approved and paid out of the liquidation of SKFA for the period from 1 November 2012 to 31 October 2013. All creditors present at the meeting, save for Mr Michael Rose for SK Foods, LP, voted in favour of the resolution. Mr Rose voted against the resolution. At the meeting of SSFA, the resolution was carried that the liquidators’ fees in a sum not exceeding $10,000 plus GST be approved and be paid out of the liquidation of SSFA for the period from 1 October 2012 to 31 October 2013.
There was a joint meeting of the Companies on 21 October 2014. On 24 September 2014, the plaintiffs provided a joint report to the creditors of the Companies and a remuneration request approval report of the same date. The joint report noted that the unincorporated partnership of Cedenco Australia was the sole creditor of SSFA. SKFA was the sole creditor of CJVA. SKFA, through Mr Sharp in respect of 100 of the 101 shares in SKFA, and Mr Salyer (in respect of 1 of the 101 shares in SKFA whose interest was payable to Mr Greeley as receiver of the amount that would otherwise have been distributed to Mr Salyer as the owner of the shares) were the sole creditors of SKFA.
The report to creditors dated 24 September 2014, was provided to SK Foods, LP, through its solicitors, Norton Rose Fulbright (Norton Rose), and to Mr Salyer. A resolution was carried that the liquidators’ remuneration for the period from 19 November 2013 to 12 September 2014 for the liquidations of SKFA, CJVA and SSFA be approved in the total amount of $100,000 inclusive of GST. That resolution was proposed and approved by Mr Porter, a partner of Norton Rose, in attendance at the meeting for SK Foods, LP.
An administrator of a company under administration is entitled to receive such remuneration as is determined by resolution of the company’s creditors (ss 449E(1)(b)). Before remuneration is determined under this section, the administrator must prepare a report and give a copy of the report to each of the company’s creditors at the same time as the creditor is notified of the relevant meeting of creditors (s 449E(7)). Section 449E(7) (liquidation) is set out above.
In the case of a creditors’ voluntary winding up, a liquidator of a company in liquidation is entitled to be paid the remuneration fixed by a resolution of the company’s creditors (s 499(3)). As I have said, the requirement that the liquidator prepare a report and that a copy be given to each of the company’s creditors at the same time as the creditor is notified of the relevant meeting of creditors is materially the same as in the case of a company under administration as set out above (s 499(7)). Sections 449E(7) and 499(7) were inserted into the Act by the Corporations Amendment (Insolvency) Act 2007 (Cth). The Explanatory Memorandum for the Bill contained the following statements:
4.93The Bill will amend the Corporations Act such that an external administrator must provide sufficient information to enable the approving party to assess remuneration as reasonable, including a summary description of the major tasks and the costs associated with each of them. This requirement will apply where the approving party is a committee of inspection, a committee of creditors or a meeting of creditors. This requirement will apply where remuneration is being set under sections 449E and 473, 495 and 499 of the Corporations Act.
4.94The requirements are expressed in general terms, as the matters that will need to be addressed and the amount of detail required to appropriately inform creditors will vary with the size and nature of the proceeding and the amount of remuneration sought. It is intended that the new requirements would provide practitioners with maximum flexibility and avoid the imposition of unwarranted costs (which ultimately are borne by creditors). To maximise the usefulness of the report to creditors (including creditors who may be unfamiliar with insolvency proceedings) the report should be expressed in simple language. It should be no more than two pages in length for routine matters.
4.95It should not be taken that the creditors’ report should address each of the matters that a court must consider in setting remuneration, or even a given subset of these matters. This would be unduly onerous and inflexible. Rather, the report should focus on explaining the main bases for the remuneration proposal, noting that further elucidation may be provided at the meeting of creditors or the meeting of the committee.
In Australian Securities and Investments Commission v Dunner [2013] FCA 872; (2013) 303 ALR 98 (ASIC v Dunner), Middleton J considered the operation of s 499(6) of the Act, which except for the fact that it deals with remuneration fixed by the committee of inspection as distinct from a creditors’ resolution, is in materially the same terms as s 499(7). His Honour addressed the obligations imposed by s 499(6) and expressed the conclusion that an approval given in circumstances in which the information is seriously deficient is invalid. His Honour said (at [160]):
The obligations of a liquidator under s 499(6) primarily relate to the contents of the reports required to be provided to the committee of inspection or creditors at the time of notification of a committee of inspection or creditors’ meeting, rather than what additional information may be provided to creditors by a liquidator at a subsequent time. There is a clear legislative intention that this report effectively be self-contained and comprehensive, to enable the committee of inspection or creditors to make an informed decision in all the circumstances. On the basis of the foregoing, I find that Mr Dunner breached his duties as a liquidator by giving deficient written reports to the committee of inspection. Even if the reports were in fact orally supplemented by Mr Dunner at or shortly before each meeting, this does not necessarily overcome the breach. A creditor cannot make an informed decision about whether to attend and vote at a meeting if the report provided upon notice of the meeting being issued is deficient in material particulars, such as how much work has actually been undertaken (or is likely to be undertaken) in a liquidation. Approval of remuneration given in circumstances where the necessary information is seriously deficient (for example, in the manner demonstrated here) is invalid. Any approval given at such a meeting is diminished because, as explained by Dodds-Streeton J in Edge (2007) 211 FLR 137; [2007] VSC 170 at 177 [189], in the absence of meaningful reports and accounts which would permit scrutiny of Mr Dunner’s conduct, the existence and extent of any dissatisfaction, loss or prejudice (on the part of the committee of inspection or creditors) cannot be readily ascertained.
I turn now to consider whether the remuneration reports provided by the plaintiffs met the requirements of s 449E(7) (administration) and s 499(7) (liquidation). There was limited debate before me about the deficiencies probably because there was a concession by the plaintiffs that the reports were deficient. That concession was made in the correspondence with ASIC in May 2015, in Mr Lock’s first affidavit in Schedules A and B, and in paragraph 54 of Mr Sheahan’s second affidavit. There were some suggestions that the matter was not conceded and I refer to paragraph 10 of Mr Lock’s first affidavit, and paragraph 65 of the Plaintiffs’ Outline of Opening Submission. Nevertheless, in my opinion, the concession was made. Despite the concession, it is necessary to identify, at least in general terms, the deficiencies in the remuneration reports.
Before doing that, it is convenient to note that in his second affidavit, Mr Lock produces a number of remuneration reports he and Mr Sheahan prepared, “so that the Court has available to it, information that would be available to creditors prior to considering whether to approve [the plaintiffs’] remuneration in respect of the sums [the plaintiffs] seek the Court to fix”. In addition, the plaintiffs prepared a narrative of the tasks undertaken within each period which could be read in conjunction with the related remuneration reports. In the reports, the plaintiffs refer to their earlier remuneration reports as being reports which “may not have met the standard of best practice”. Mr Lock said that the remuneration reports were based on the form recommended by the Australian Restructuring Insolvency & Turnaround Association (ARITA) in Part 23.2 of the Code of Professional Practice (3rd edition) and set out in detail the category of tasks performed by the plaintiffs and their staff; the specific tasks undertaken within each category; the total time spent within each category and related fees for tasks carried out in that category; and the time spent by each practitioner in the firm within each category both hour and fee amount calculated on the plaintiffs’ set charge out rates. Mr Lock said, and I accept, that the remuneration reports have been settled by Mr Steve Barnett, director of Insolvency Practitioners Support Services Pty Ltd, a consultant engaged by the plaintiffs to provide advice about their compliance with their statutory obligations, specifically in relation to compliance with reporting on remuneration.
The following features of subsections 449E(7) and 499(7) are to be noted: (1) there is an element of flexibility in paragraph (a)(i) in referring to such matters as will produce a particular result; (2) the result to be achieved is that the creditors who study the report will be in a position to make an assessment as to whether the proposed remuneration is reasonable which assessment is an informed one; (3) even though the subsection is to be given a beneficial effect because its purpose is to enable creditors to be better informed, paragraph (a)(ii) reflects the fact that there are limits to the information to be provided by the insolvency practitioner in that the description is to be a summary description of the major tasks; and (4) a copy of the report is to be provided with the notice of meeting.
The requirements of the subsections may be met in a variety of ways and it is clear enough that it is not possible to lay down in advance detailed sub-rules or requirements. A deficiency in one area may be overcome in another by additional information presented in a different way. At the same time, there is no notion of deference to the judgment of the administrator or a liquidator and the subsection must be complied with according to its terms. It may be that a minor deficiency in the information provided (assuming that there can be such a thing having regard to the terms of the subsection) will not lead to the invalidity of the creditors’ resolution (a matter not debated in this proceeding) or it may lead to an increased willingness on the part of the Court to make an order under s 1322(4)(a).
I have considered all the remuneration reports. Two reports represent an accurate sample of the reports. They are both joint reports for SKFA and CJVA.
The first report is the joint report for SKFA and CJVA dated 23 July 2010, that is during the administration. It addresses the period from 6 May 2010 to 9 July 2010.
The schedule of hourly rates informs creditors of the hourly rates of the plaintiffs and members of their firm and the summary of fees and disbursements informs creditors of the hours spent by each plaintiff and staff member on the administration and the overall charge for that person.
The tasks carried out are described in the remuneration report in a general way. Seven broad categories are identified of which three are said to be applicable. They are “Creditors”, “Investigation” and “Administration”.
The plaintiffs and their staff are said to have spent 142.26 hours with respect to creditors at a cost of $65,176.78. The category of creditors is divided into six sub-categories of “Creditor Enquiries”, “Secured creditor”, “Creditor reports”, “Dealing with proofs of debt”, “Meeting of Creditors” and “Shareholder enquiries”. There are then general descriptions made in point form with respect to each category. For example, for secured creditor, the following appears:
Communicating with the secured creditor
Communicating with the receivers
Meeting with the receivers
For Shareholder Enquiries, the following appears:
Responding to any shareholder enquiries
The plaintiffs and their staff are said to have spent 163.63 hours with respect to investigations at a cost of $92,454.94. The category of investigations is divided into seven sub‑categories of “Review Records”, “Litigation”, “ASIC reporting”, “Overseas and interstate meetings”, “Correspondence”, “Status meetings” and “Processing proofs of debt”. For overseas and interstate meetings, the following appears:
Travel and meetings with overseas trustee
Travel and meetings with overseas director
Travel and meetings with overseas and interstate receivers
Related communications
The plaintiffs and their staff are said to have spent 90.57 hours with respect to administration at a cost of $48,157.07. The category of administration is divided into six sub‑categories of “Document maintenance/file review/checklist”, “Insurance”, “ASIC Form 524 and other forms”, “ATO & other statutory reporting”, “Planning/Review” and “Book and records/storage”. A number of the general tasks described in each category appear to be administrative tasks capable of being performed by staff below, perhaps well below, partner.
The Summary of Fees and Disbursements informs the creditors that over 75% of the time spent related to work carried out by the plaintiffs.
It seems to me that ordinarily, at least, the two matters which would be of principal concern to creditors in assessing the reasonableness of the administrators’ proposed remuneration are that the tasks being carried out are necessary and proper and that the tasks being carried out are being carried out at an appropriate level of seniority. In other words, a creditor will want to guard against unnecessary work or work being carried out at a higher rate than is required by the nature of the work.
The present question is not whether unnecessary work has been carried out in this case or work done at an inappropriate level of seniority. The question is whether the creditors were given sufficient information to make an informed assessment about the reasonableness of the proposed remuneration. In my opinion, the remuneration report, schedule of hourly rates and summary of fees and disbursements, describes the work at such a high level of generality that it falls well short of meeting this requirement.
The second report is a joint report for SKFA and CJVA dated 5 December 2011, that is during the liquidation. It addresses the period from 1 November 2010 to 30 November 2011.
The second report includes an hourly rate said to be effective from 1 July 2011 and a table showing the hours spent by each plaintiff and members of their firm and the total charge for each person. As with the first report, the tasks carried out are described in a general way. The tasks carried out are divided into seven categories of which five are said to be applicable. In fact, only four categories are dealt with in the report. They are “Creditors”, “Investigation”, “Dividend” and “Administration”.
The plaintiffs and their staff are said to have spent 182.7 hours with respect to creditors at a cost of $228,597.84. The sub-categories and description of tasks for each sub-category are identical to the equivalent section in the first report, including a reference (which must be erroneous) to preparing a s 439A report.
The plaintiffs and their staff are said to have spent 2,460.56 hours with respect to investigations at a cost of $1,385,896.55. The sub-categories are the same as they were in the first report, with the exception that the sub-category of processing proofs of debt has been moved into the category of dividends. The description of tasks for each sub-category in investigations are identical to the equivalent section in the first report, including a reference (which must be erroneous) to liaising with solicitors regarding application to court for extension of convening period and application to court for remedy of defect in appointment.
The plaintiffs and their staff are said to have spent 142.43 hours with respect to administration at a cost of $48,544.17. The sub-categories and the description of tasks for each sub-category are identical to what they were in the first report.
The second remuneration report claims a total of 3,241.07 hours were spent on the liquidations of SKFA and CJVA by the plaintiffs and their staff at a total cost of $1,745,945.30. Work done by the plaintiffs themselves accounts for over half the hours spent.
My conclusions with respect to the second report are the same as they are with respect to the first report with the added observation that some tasks, such as liaising with solicitors regarding application to court for extension of convening period, could not have been carried out a second time. Their inclusion is not only wrong, but adds to the impression of a lack of care in describing in a meaningful way the actual tasks carried out during the particular period which is the subject of the report. Of course, routine and mundane tasks may be described in the same way from report to report, but the deficiencies in the second report go well beyond this observation.
As I have said, I have considered all of the remuneration reports and I am of the opinion that none of them meet the requirements of s 449E(7) or s 499(7) as the case may be. The creditors’ resolutions fixing or determining the plaintiffs’ remuneration are invalid, subject to any relief that might be granted under s 1322(4)(a) of the Act.
RELIEF UNDER S 1322 OF THE ACT
Section 1322 of the Act relevantly provides:
1322 Irregularities
(1) In this section, unless the contrary intention appears:
(a)a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to:
(i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii) a defect, irregularity or deficiency of notice or time.
…
(4)Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a)an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
(5)An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.
(6)The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c) – that the person subject to the civil liability concerned acted honestly; and
(c)in every case – that no substantial injustice has been or is likely to be caused to any person.
Mr Sheahan addressed the work which ASIC had characterised as “Other Administrative Work”. He said that it was the firm’s usual practice that administrative work would be undertaken primarily at an administrative or clerical level. That was the practice adopted in relation to the liquidations of the Companies.
Mr Sheahan said that he has reviewed the time entries that ASIC asserts represent work of a purely administrative nature. He states that those narrations (i.e., the narrations in the plaintiffs’ WIP reports) may give a misleading impression of the nature of the work undertaken. Mr Sheahan said he could not recall the specific tasks that were undertaken in relation to each time entry. However, he said that by reference to the task code and the narrations and the firm’s usual practice, he considered that the work represented by the following entries was as follows. First, in relation to “internal staff attendance” that category broadly comprises internal meetings, sometimes with multiple staff, wherein instructions may be given, or work delegated to, more general practitioners, or a review of documents or records is undertaken with the assistance of other staff, or feedback or updates obtained from staff as to the progress of their work, discussions they may have had with creditors, solicitors or others, and any issues that may have arisen out of those discussions. Secondly, the category “planning” includes conferral between the plaintiffs as to dividing the necessary work between them, consideration of appropriate investigations, the necessity and form of such investigations, consideration of any statutory limitations that may impact on investigations and potential claims, planning the appropriate order in the investigations and when and where such investigations are to be carried out, determining which staff would be appropriate to undertake work relating to those investigations. Thirdly, “staff tasks” refers to time spent delegating to and providing instructions to staff about work to be undertaken. Fourthly, “meeting arrangements” includes consideration of the appropriate location for a meeting, who ought to chair the meeting, what information should be made available to creditors, and general preparation for a meeting. Fifthly, “conferring” means the plaintiffs conferring with each other about the separate aspects of the administrations for which they have primary responsibility in order that both of them are kept abreast of the status and developments in the liquidations and also to discuss the next steps. Sixthly, “fee accounts” refers to settling of the plaintiffs’ remuneration claims, review of WIP schedules and remuneration reports, the review of third party fee accounts to determine the appropriateness of the charges, including review of fee accounts from the plaintiffs’ solicitors, which in addition to enabling the plaintiffs to consider the appropriateness of the fees charged, also forms part of the plaintiffs’ ongoing review of costs, and considering the appropriate allocation of third party costs, such as solicitors accounts as between each company. Finally, “staff review” or “staff supervision” relates to conferring with junior staff in order to be updated and kept abreast of what was occurring in the liquidations and review and delegate work.
Work of a Legal Nature
The amount in issue with respect to SKFA and CJVA is $300,679.36 for the period from 11 August 2010 to 31 October 2013. With respect to SSFA, the amount in respect of the period 11 August 2010 to 30 June 2012 is $9,165.05, and with respect to the period 1 October 2012 to 31 October 2013 the amount is $8,240. It is no doubt relevant to note in this context that the legal expenses in the administrations and liquidations were approximately $5.235 million. Mr Sheahan addresses the work which ASIC has characterised as work of a legal nature in his second affidavit. Mr Sheahan told the Court that it is the plaintiffs’ practice that at least one of them will attend every court hearing at which “there was some particular issue of interest, but certainly if there was anything substantive to be decided or discussed, then yes, we would attend”. Mr Sheahan was asked about directions hearings held on 28 and 29 February 2012 at which both plaintiffs and Mr Oliver Sheahan attended. Mr Sheahan accepted that by the second day, the application was routine and that it was then excessive for all three to attend. The time entries for these particular appearances are as follows:
(1)Entry for Mr Lock for 28 February 2012 “Court re directions appn” 1.33 hrs $933;
(2)Entry for Mr Lock for 29 February 2012 “Confer JS, mtg consl, court attendance” 2.5 hrs $1,750;
(3)Entry for Mr Sheahan for 28 February 2012 “attend Fed Ct re Besanko J hearing mtg” 1.92 hrs $1,341.67;
(4)Entry for Mr Sheahan for 29 February 2012 “prepn for/attendn confern in chambers re Besanko J& BS appl” 1.25 hrs $875;
(5)Entry for Mr Sheahan for 29 February 2012 “Attend Fed Ct re vat applicns” 1.33 hrs $933.33;
(6)Entry for Mr Oliver Sheahan for 28 February 2012 “attend directions hearing” 1.08 hrs $292.50; and
(7)Entry for Mr Oliver Sheahan for 29 February 2012 “Attend directions hearing” 1.33 hrs $360.
Mr Sheahan said that in the case of these administrations and liquidations it was necessary for the plaintiffs to have frequent contact with their solicitors, counsel and attorneys.
Mr Sheahan said that he had reviewed the time entries which ASIC asserts fall within this category. He cannot recall the specific tasks that were undertaken for each time entry. However, he said that by reference to the narrations, the work represented by these time entries may have comprised the following. First, “preparation of briefs” relates to compiling relevant documents and preparing summaries, chronologies, requests for advice for briefs to be sent to the plaintiffs’ solicitors in relation to legal issues upon which advice is or has been sought. Second, “reviewing documents” relates to the review of documents forming the books and records of the Companies and may include documents provided by directors, advisers or other witnesses, either voluntarily or by compulsion. Third, “corresponding/communicating with solicitors” refers to the plaintiffs or their staff communicating with and briefing solicitors about matters pertinent to their engagement or receiving advice. Mr Sheahan said that it was the plaintiffs’ practice to maintain close communication with their legal advisers so that they could provide timely instructions, stay up to date with the progress of the preparation of advice or the progress of legal proceedings, making informed decisions about the next steps and the timing of those steps, and properly report to creditors. Fourth, “meetings with solicitors and/or counsel” related to meetings with solicitors or counsel or both for the same purposes as those set out in relation to communicating with solicitors. Fifth, “legal issues” or “legal matters” relates to the identification of matters for which legal advice may need to be sought, or considering advice which had been obtained. Sixth, “attending hearings” relates to attendance at hearings in proceedings in which the plaintiffs or the Companies are parties, or having an interest in the outcome. Mr Sheahan said that the plaintiffs find that being in court for such hearings, had the following advantages: (1) it enables the plaintiffs to give timely instructions to solicitors or counsel as required, including in relation to timetables, orders and any compromises or accommodations that may be reached with opposing parties; (2) it allows the plaintiffs to assess the demeanour of witnesses as well as the veracity of evidence that may be given in a superior way to simply reviewing transcript; (3) it affords the plaintiffs the opportunity to confer with an opposing party which can be beneficial in resolving disputes or narrowing issues; and (4) allows the plaintiffs to consider the subtleties of questions from the bench in the context of the proceeding as they occur. Seventh, “reviewing documents from solicitors” refers to the plaintiffs or their staff reviewing documents received from the plaintiffs’ solicitors, such as draft correspondence or court documents, for example, pleadings or affidavits. Mr Sheahan said that the plaintiffs consider it necessary to undertake this work because: (1) with respect to correspondence of substance, the plaintiffs’ solicitor invariably require instructions from the plaintiffs and, therefore, it is necessary for the plaintiffs to review the correspondence; (2) the plaintiffs are required to instruct their solicitors as to the content of affidavits and as to any amendments to draft affidavits; (3) the plaintiffs must instruct their solicitors for the purposes of pleadings and other court documents and must review draft documents; and (4) the plaintiffs must remain informed and up to date with their investigations and legal proceedings, and Mr Sheahan states that for that purpose, they must monitor correspondence and have a working understanding of the issues in legal proceedings. Eighth, “settling and compiling affidavit material” relates to reviewing, amending and compiling affidavits drafted by the plaintiffs’ solicitors in relation to court proceedings. Mr Sheahan said that he provides instructions to his solicitors as to the content of any affidavit he is to swear and information as to any source documents or annexures or exhibits in his possession. He then settles the affidavit to ensure that it is correct and accurate.
CONCLUSIONS
The plaintiffs’ application under s 1322(4)(a) of the Act is refused.
As far as determining or fixing the plaintiffs’ remuneration is concerned:
(1)the plaintiffs’ remuneration must be reduced to reflect my conclusions with respect to hourly rates (at [314]–[315]);
(2)the plaintiffs’ remuneration in relation to the four work streams and the application to validate appointment as voluntary administrators must be reduced in accordance with my conclusions in these reasons (at [382], [424]–[425], [447], [469]–[471]);
(3)the plaintiffs’ remuneration for minutes of meetings, remuneration reports, write-up of Mr Oliver Sheahan’s time and write-up of Mr Samuel Rees’ time and reports to creditors, 22 December 2011 creditors’ meeting and the ASIC Form 524s are disallowed or reduced in accordance with these reasons (at [476]–[498]);
(4)I will hear the parties as to the disposition of ASIC’s other objections in light of these reasons (at [499]–[533]); and
(5)ASIC submitted that after its specific objections have been considered and an amount determined, the Court should give consideration to whether the resulting amount is proportionate “overall as a check and balance”. Whether there is room for such an approach after the analysis already conducted is a matter that ASIC, if so advised, can raise after the amount has been determined.
I will give the parties an opportunity to consider these reasons and fix a date for the final disposition of the proceedings. The parties will then be heard on the question of costs.
I certify that the preceding five hundred and thirty-six (536) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.
Associate:
Dated: 11 February 2019
Annexure A
MARKET RATES FOR INSOLVENCY PRACTITIONERS – 2010 Firm Hourly rates ($) Manager Senior Manager Partner Sheahan Lock Partners 450 550 700 PPB Advisory (Large & Complex) 455 500 625 Korda Mentha 400 450 625 BDO 420 465 595 PPB Advisory (General) 425 465 590 McGrathNicol 395 420 570 Grant Thornton Australia 380 415 525 BRI Ferrier 360 380 495 Meertens Chartered Accountants 386 425 495 Smith Hancock 310 390 470 Hayes Advisory No data No data No data Average hourly rates by firm size (excluding Sheahan Lock Partners) Firm size Average hourly rates ($) Manager Senior Manager Partner Medium to large firms 405 442 575 Boutique firms 348 408 483 Overall 392 434 554
MARKET RATES FOR INSOLVENCY PRACTITIONERS – 2011 Firm Hourly rates ($) Manager Senior Manager Partner Sheahan Lock Partners 450 550 700 PPB Advisory (Large & Complex) 465 510 675 Korda Mentha 425 475 625 PPB Advisory (General) 445 490 620 BDO 450 495 595 McGrathNicol 395 420 570 Grant Thornton Australia 395 430 545 BRI Ferrier 390 410 535 Meertens Chartered Accountants 438 481 545 Smith Hancock 325 395 495 Hayes Advisory No data No data No data Average hourly rates by firm size (excluding Sheahan Lock Partners) Firm size Average hourly rates ($) Manager Senior Manager Partner Medium to large firms 424 461 595 Boutique firms 382 438 520 Overall 414 456 578
MARKET RATES FOR INSOLVENCY PRACTITIONERS – 2012 Firm Hourly rates ($) Manager Senior Manager Partner Sheahan Lock Partners 450 550 700 PPB Advisory (Large & Complex) 510 560 745 Korda Mentha 445 495 625 BDO 450 495 595 McGrathNicol 395 420 570 BRI Ferrier 410 430 560 PPB Advisory (General) 380 450 555 Grant Thornton Australia 395 425 545 Smith Hancock 340 410 540 Hayes Advisory 320 355 450 Meertens Chartered Accountants No data No data No data Average hourly rates by firm size (excluding Sheahan Lock Partners) Firm size Average hourly rates ($) Manager Senior Manager Partner Medium to large firms 426 468 600 Boutique firms 330 383 495 Overall 405 449 576
MARKET RATES FOR INSOLVENCY PRACTITIONERS – 2013 Firm Hourly rates ($) Manager Senior Manager Partner Sheahan Lock Partners 450 550 700 PPB Advisory (Large & Complex) 520 570 745 Korda Mentha 450 495 625 BDO 450 495 595 BRI Ferrier 430 450 585 Meertens Chartered Accountants 466 512 580 McGrathNicol 395 420 570 Grant Thornton Australia 440 465 565 PPB Advisory (General) 390 460 555 Smith Hancock 355 425 560 Hayes Advisory 320 355 450 Average hourly rates by firm size (excluding Sheahan Lock Partners) Firm size Average hourly rates ($) Manager Senior Manager Partner Medium to large firms 439 479 606 Boutique firms 380 431 530 Overall 422 465 583
MARKET RATES FOR INSOLVENCY PRACTITIONERS – 2014 Firm Hourly rates ($) Manager Senior Manager Partner Sheahan Lock Partners 450 550 700 PPB Advisory (Large & Complex) 520 570 745 Korda Mentha 475 525 650 BDO 450 495 645 Grant Thornton Australia 465 490 595 BRI Ferrier 430 450 585 Meertens Chartered Accountants 466 512 580 McGrathNicol 395 420 570 Smith Hancock 365 435 560 PPB Advisory (General) 390 460 555 Hayes Advisory 320 355 450 Average hourly rates by firm size (excluding Sheahan Lock Partners) Firm size Average hourly rates ($) Manager Senior Manager Partner Medium to large firms 446 487 621 Boutique firms 384 434 530 Overall 428 471 593 Annexure B
Work stream
Question 1
Would a CPIP have carried out the work?
Question 2(a)
To what extent?
Question 2(b)
With similar personnel?
Debt and equity issues Investigations into the debt and equity issues Yes, to a limited extent. To the extent of preliminary investigations necessary to understand the nature of the dispute
Otherwise, only if preferred alternative approaches were exhausted or unavailable.
Insufficient information to comment US Bankruptcy Court Proceedings Yes, to a limited extent
No
Yes
To the extent of reviewing and seeking advice to understand the injunction order and its impact on the liquidation.
In relation to the review of the materials submitted by Mr Sharp in support of the application for the injunction.
In corresponding with Mr Sharp regarding the allegedly misleading information should such information have been identified.
Insufficient information to comment Equity Proceedings Yes
No
Yes, to a limited extent.
No
Yes
In defending allegations which falsely impugned the Practitioners’ conduct.
In defending allegations which properly impugned the Practitioners’ conduct.
In applying to transfer the proceedings to South Australia provided that there was a net cost saving to the Parties from such an action, otherwise no.
In opposing Mr Sharp’s application for summary judgment and offering to assist the Court as contradictor.
In acting as contradictor in the proceedings if required by the Court.
Insufficient information to comment. Potential claims against Directors and ANZ Briefing solicitors Yes, to a limited extent. Up to the point of receiving the O’Donovan advice.
After that only if:
• the Parties had agreed that pursuing the Potential Claims was in their best interests; or
• if litigation funding had been obtained to protect stakeholders’ interests.
Insufficient information to comment. Investigations in Australia and NZ Yes, to a limited extent
Yes
Yes
Up to the point of receiving the O’Donovan advice
After that only if:
• the Parties had agreed that pursuing the Potential Claims was in their best interests; or
• if litigation funding had been obtained to protect stakeholders’ interests
In relation to the investigation of options for the funding of the pursuit of the Potential Claims.
In reporting to creditors regarding the nature and prospects of the Potential Claims and, if relevant, in relation to the progress in pursuing the Potential Claims.
Insufficient information to comment POC Act Proceedings and AFP Consideration of POC Act Application Yes In relation to initial enquiries regarding POC Act Application and briefing solicitors
Insufficient information to comment. Liaison with AFP Yes, to a limited extent. Only to extent required under s533 of the Corporations Act and any reasonable assistance to law enforcement agencies
Insufficient information to comment. Responding to AFP Yes, to a limited extent. To the extent of orders issued for production under the POC Act otherwise seek to avoid or minimise voluntary production or assistance.
Insufficient information to comment. Involvement in POC Act Proceedings Yes, to a limited extent Only to extent required to efficiently and effectively respond to allegations of misconduct alleged by Mr Sharp.
Insufficient information to comment Receivers Correspondence about Receivers’ retirement Yes
No
Corresponding with the Receivers about their retirement and the completion of the remaining tasks in the receivership.
Seeking of legal advice about the retirement of the Receivers and the prospects of success of an application to remove them.
Insufficient information to comment Receivers’ directions application Yes
No
Briefing solicitors to correspond in relation to the Receivers’ application for directions.
Participating in Receivers’ application for directions.
Insufficient information to comment Application to remove Receivers No
No
In relation to making an application for removal of the Receivers.
In relation to bringing the application to dismiss the relief sought by ANZ
Insufficient information to comment.
SCHEDULE OF PARTIES
SAD 222 of 2015 Plaintiffs
Fourth Plaintiff:
IAN RUSSELL LOCK AND JOHN SHEAHAN AS JOINT AND SEVERAL LIQUIDATORS OF SK FOODS AUSTRALIA PTY LTD (IN LIQUIDATION)
Fifth Plaintiff:
IAN RUSSELL LOCK AND JOHN SHEAHAN AS FORMER JOINT AND SEVERAL ADMINISTRATORS OF SS FARMS AUSTRALIA PTY LTD (IN LIQUIDATION)
Sixth Plaintiff:
IAN RUSSELL LOCK AND JOHN SHEAHAN AS JOINT AND SEVERAL LIQUIDATORS OF SS FARMS AUSTRALIA PTY LTD (IN LIQUIDATION)
- AGLC
- Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2) [2019] FCA 93
- Case
- [2019] FCA 93
- Decision Date
CaseChat Overview and Summary
Orders
Orders of the court
1. The plaintiffs’ application under s 1322(4)(a) of the Corporations Act 2001 (Cth) be refused.
2. The plaintiffs’ application for the determination or fixing of their remuneration be adjourned to a date to be fixed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Finally, ASIC adduced evidence from Mr Bradley D Sharp. Mr Sharp is the President and Chief Executive Officer of Development Specialists Inc. At the relevant time, Mr Sharp was a senior managing director. Development Specialists Inc provides insolvency and restructuring services, among other services. Mr Sharp has worked in the bankruptcy and insolvency industry for more than 20 years and he has worked in the bankruptcy and insolvency industry for more than 20 years. On 14 May 2009, Mr Sharp was appointed the Chapter 11 Trustee in Bankruptcy of SK Foods, LP, and the United States Bankruptcy Court approved his appointment on 18 May 2009. He claimed that SK Foods, LP owned 100 of the 101 issued shares in SKFA. Mr Sharp swore an affidavit which was received as his evidence-in-chief and he was cross-examined by counsel for the plaintiffs. Mr Sharp was a satisfactory witness.THE KEY EVENTS IN THE ADMINISTRATIONS AND LIQUIDATIONS The facts in this matter are many and complex. It is convenient to start with a manageable chronology. Later in these reasons, it will be necessary for me to examine the facts in particular areas in a good deal more detail. I will adopt the chronology of events which was annexed to the plaintiffs’ written outline of opening submission with such changes as I consider necessary. (1)In early 2009, Mr Salyer was arrested and charged with racketeering. SK Foods, LP’s financiers, led by the Bank of Montreal (BMO), moved against the assets of the company and the company sought Chapter 11 bankruptcy protection, resulting in the appointment of Mr Sharp as trustee in bankruptcy.(2)In about mid-2009, the New Zealand Companies, which companies shared common directors and management with the Companies and which were owned by interests associated with Mr Salyer, breached their banking covenants with ANZ NZ.(3)As a condition of the provision of continued banking support to the New Zealand Companies, the Companies and the New Zealand Companies entered into a guarantee in July 2009 by which they cross-guaranteed each other entities’ debts.(4)In October 2009, the New Zealand Companies again defaulted on their banking covenants and failed to remedy such defaults. ANZ NZ appointed receivers in November 2009.(5)On 6 May 2010, the plaintiffs were appointed joint and several administrators of each of SKFA, CJVA and SSFA by reason of a resolution passed by the company’s directors pursuant to s 436A of the Act. The plaintiffs were also appointed liquidators over the New Zealand Companies.(6)On or around 23 July 2010, the plaintiffs provided the Companies’ creditors with reports for the purposes of s 439A of the Act. Those reports:(a)provided creditors with information as to the reasons for the financial difficulties of the Companies;(b)informed creditors that the identity of the shareholders of SKFA was a matter that may need to be determined in the liquidation of SKFA;(c)informed creditors of their investigations into the Companies’ affairs, including their communications with the receivers, financier, directors and certain creditors;(d)provided creditors with a report of the Companies’ financial position;(e)provided an overview of the plaintiffs’ consideration of potential legal claims; and(f)provided creditors with a schedule of their firm’s standard charge out rates and set out the remuneration for which the plaintiffs proposed to seek the approval of creditors.(7)On 23 July 2010, the plaintiffs learned from the receivers that the business assets of the Companies were to be sold for $91 million, resulting in a substantial surplus of funds after payment of the secured debt and receivers fees. The receivers provided warranties to the purchaser of the Companies’ assets for a period of 6 months.(8)On or around 29 July 2010, the plaintiffs provided the Companies’ creditors with a supplementary report for the purposes of s 439A of the Act. That report informed the Companies’ creditors that:(a)the receivers had entered into an agreement to sell the business assets of the Companies for $91 million, meaning that there would be a substantial surplus following the payment of creditors;(b)the receivers had provided the purchaser with warranties for a period of 6 months following the anticipated completion of the sale on 30 July 2010; and(c)the sale of the business assets would likely lead to a capital gains tax liability being incurred by the company.(9)In or around August 2010, following the review of books and records of the Companies, the plaintiffs considered the existence and viability of potential claims against the former directors of the Companies and the Companies’ financier, ANZ. They sought advice from solicitors and counsel.(10)On or around 3 August 2010, the plaintiffs became aware of the existence of a dispute concerning the ownership of the shares in SKFA and a debt owed by SKFA of approximately $17 million.(11)At meetings of the Companies’ creditors held 11 August 2010:(a)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 6 May 2010 to 9 July 2010 in the amount of $205,788.79 plus GST. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution;(b)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 10 July 2010 to 6 August 2010 in the amount of $168,539.20 plus GST. The creditors present at that meeting voted to carry that resolution, save for Mr Shepard for the receivers of SKFA and CJVA who abstained;(c)Mr Cary Collins, moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 6 May 2010 to 9 July 2010 in the amount of $6,520.91 plus GST. The creditors present at that meeting unanimously voted to carry that resolution; and(d)Mr Collins moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 10 July 2010 to 6 August 2010 in the amount of $12,633.32 plus GST. The creditors present at that meeting voted to carry that resolution, save for Mr Shepard for the receivers of SKFA, SSFA and ANZ, who abstained;(e)Mr Sharp moved a resolution that SKFA and CJVA be placed into liquidation and that the plaintiffs be appointed as joint and several liquidators of each. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution; (f)Mr Neal Alexander, moved a resolution that SSFA be placed into liquidation and that the plaintiffs be appointed as joint and several liquidators of each. The creditors present at that meeting unanimously voted to carry that resolution;(g)Mr Sharp moved a resolution that the remuneration of the plaintiffs (as liquidators of SKFA and CJVA) for the period from the commencement of the liquidation to the completion of the liquidation shall be a sum equal to the cost of time spent by the plaintiffs, partners and staff, calculated at the rates detailed in the schedule of charge out rates as provided to creditors in the recent report. The creditors present at that meeting, including Mr Sharp, unanimously voted to carry that resolution; and(h)Mr Collins moved a resolution that the remuneration of the plaintiffs (as liquidators of SSFA) for the period from the commencement of the liquidation to the completion of the liquidation shall be a sum equal to the cost of time spent by the plaintiffs, partners and staff, calculated at the rates detailed in the schedule of charge out rates as provided to creditors in the recent report. The creditors present at that meeting unanimously voted to carry that resolution;(12)On or around 2 November 2010, the plaintiffs provided the Companies’ creditors with reports on the progress of the liquidations. Those reports:(a)confirmed to creditors that the identity of the shareholders of SKFA was a matter that would need to be determined prior to any distribution being made to shareholders;(b)informed creditors of the efforts the plaintiffs had made to collect and review the Companies’ books and records;(c)informed creditors of the plaintiffs’ communications with the receivers, concerning their release of the proceeds of the sale of the business assets and their retirement;(d)informed creditors of the plaintiffs’ efforts to quantify the Companies’ capital gains tax liabilities following the sale of their business assets;(e)provided creditors with a report of the Companies’ financial position; and(f)set out the remuneration for which the plaintiffs proposed to seek creditor approval.(13)At a joint meeting of the creditors of SKFA and CJVA held on 17 November 2010:(a)Mr Sharp moved a resolution that the plaintiffs’ fees (as administrators of SKFA and CJVA) be approved for the period from 7 August 2010 to 10 August 2010 in the amount of $31,746.67 plus GST. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution;(b)Mr Sharp moved a resolution that the plaintiffs’ fees (as liquidators of SKFA and CJVA) be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $550,000 plus GST, noting that this represented a write off of just under $100,000 from the work in progress (WIP) incurred and referred to in the report to creditors. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution; and(c)Mr Sharp moved a resolution that the plaintiffs be authorised to draw down fees to a limit of $125,000 plus GST per month. The creditors present at that meeting, including Mr Sharp, voted to carry that resolution.(14)At a meeting of the creditors of SSFA held on 17 November 2010:(a)Mr Collins moved a resolution that the plaintiffs’ fees (as administrators of SSFA) be approved for the period from 7 August 2010 to 10 August 2010 in the amount of $217.50 plus GST. The creditors present at that meeting voted to carry that resolution; and(b)Mr Collins moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 11 August 2010 to 31 October 2010 in the amount of $93,061.83 plus GST. The creditors present at that meeting voted to carry that resolution.(15)In November and December 2010, the plaintiffs met with stakeholders regarding the Debt and Equity Issues. (16)In February 2011, the warranty period in the sale and purchase agreement under which the receivers sold the assets of the Companies expired. The plaintiffs called for the receivers to retire, however, the receivers refused.(17)In March 2011, settlement discussions between Mr Sharp and the Salyer interests took place in an effort to resolve the dispute surrounding the Debt and Equity Issues. (18)On 4 May 2011, Mr Sharp commenced proceedings in the United States Bankruptcy Court in relation to, inter alia, the Debt and Equity Issues. Those proceedings were stayed, along with all other proceedings against Mr Salyer and his interests, whilst the criminal indictments against Mr Salyer were on foot.(19)On or around 28 June 2011, the plaintiffs provided the creditors of SSFA with a report on the progress of the liquidation. That report:(a)informed creditors of the efforts the plaintiffs had made to collect and review the books and records of SSFA and their consideration of the cross-guarantees;(b)informed creditors of the plaintiffs’ communications with the receivers concerning their release of the proceeds of the sale of the business assets and their retirement;(c)informed creditors of the declaration of a first dividend on 26 December 2010;(d)informed creditors of the plaintiffs’ efforts to quantify the Companies’ capital gains tax liabilities following the sale of their business assets;(e)provided creditors with a report of the financial position of SSFA; and(f)set out the remuneration for which the plaintiffs proposed to seek creditor approval.(20)At a meeting of the creditors of SSFA held on 15 July 2011:(a)Mr Michael DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 1 November 2010 to 20 June 2011 in the amount of $226,945.83 plus GST. The creditors present at that meeting voted to carry that resolution;(b)Mr DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved for the period from 21 June 2011 to 30 June 2011 in the amount of $16,420.84 plus GST. The creditors present at that meeting voted to carry that resolution; and(c)Mr DuBourg moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) be approved prospectively at up to $50,000 plus GST per month, form 1 July 2011 to 30 June 2012, with any amount above that requiring further approval by creditors, a committee of inspection or the Court in due course. The creditors present at that meeting voted to carry that resolution.(21)In July and October 2011, the plaintiffs undertook examinations in New Zealand of former directors and executives of the Companies, the Companies’ former solicitor and the relationship manager from ANZ.(22)The plaintiffs undertook depositions in the United States in August 2011 of former executives of SK Foods, LP and the auditors of SK Foods, LP.(23)In September 2011, the plaintiffs conducted examinations of former directors of the Companies, Mr Harry Heath and Mr Richard Lawrence, in the Federal Court of Australia and obtained production from the Companies’ former solicitors along with ANZ and ANZ’s solicitors.(24)In October 2011, the plaintiffs engaged in further correspondence with the receivers regarding the finalisation of the receivership. The plaintiffs were advised by the receivers that they were seeking a tax ruling from the Australian Taxation Office (ATO).(25)In November 2011, the plaintiffs engaged in further correspondence with the receivers seeking that they retire or resign as receivers of the Companies.(26)On 30 November 2011, the receivers brought an application in the Supreme Court of Victoria seeking directions that they were justified in not retiring. On 23 December 2011, the plaintiffs commenced proceedings seeking orders that the receivers be removed.(27)In November 2011, the plaintiffs obtained advice regarding the debt issue from their solicitors.(28)On or around 5 December 2011, the plaintiffs provided the creditors of SKFA and CJVA with a joint report on the progress of the liquidations. That report:(a)informed creditors of the efforts the plaintiffs had made to collect and review the books and records of SKFA and CJVA;(b)provided creditors with an update on the plaintiffs’ investigations into the Debt and Equity Issues and explained what further investigations they proposed to undertake;(c)provided creditors with an update on their investigations into the cross‑guarantees;(d)explained the events leading up to the receivers applying to the Court for directions that they were justified in not retiring;(e)informed creditors of the plaintiffs’ consideration of taxation matters effecting SKFA and CJVA;(f)informed creditors that the plaintiffs were keeping the US Department of Justice informed of any significant developments in the winding up of SKFA and CJVA and their related investigations;(g)informed creditors of the declaration of a first and final dividend on 22 December 2010 in the winding ups of SKFA and CJVA;(h)provided creditors with a report of the financial position of SKFA and CJVA;(i)set out the remuneration for which the plaintiffs proposed to seek creditor approval; and(j)informed the creditors of SKFA and CJVA of a meeting proposed to be held on 21 December 2011 (that meeting was ultimately adjourned to 9 March 2012).(29)In December 2011, the plaintiffs obtained advice from senior counsel to the effect that the Disputed Debt had not been validly assigned. On the basis of counsel’s advice, the plaintiffs proceeded to admit the proof of debt lodged by Mr Sharp in relation to the Disputed Debt subject to set-off. The plaintiffs thereafter proceeded to admit proof of debt of Mr Sharp subject to set-off. Mr Sharp appealed against the set-off and the Salyer interests appealed against the rejection of their proofs of debt.(30)In December 2011, the plaintiffs received proofs of debt in relation to the shares in SKFA, and thereby claims in respect of funds, from Mr Sharp and the Salyer interests.(31)By January 2012, further information had come to light that caused the plaintiffs to doubt their adjudication on the Disputed Debt. As a result, the plaintiffs sought alternative advice in February 2012 from senior counsel, which advice suggested the Disputed Debt had been validly assigned and thereby the plaintiffs’ adjudication was incorrect.(32)In early 2012, the plaintiffs informed Mr Sharp that their present view was that the “Spin Off” was a legitimate transaction.(33)On or around 17 February 2012, the plaintiffs provided the creditors of SKFA and CJVA with a further joint report on the progress of the liquidations. That report:(a)provided the creditors of SKFA and CJVA with a further update on the plaintiffs’ investigations into both companies’ affairs;(b)provided creditors with an update on the plaintiffs’ investigations into the Debt and Equity Issues and explained that they had sought further advice as to the effect of the material collected through their investigations;(c)informed creditors of the application brought by the plaintiffs for the removal of the receivers;(d)provided creditors with an update on the plaintiffs’ consideration of taxation matters effecting SKFA and CJVA;(e)provided creditors with an update on the adjudication of outstanding creditor claims;(f)informed creditors of an expected surplus payable to shareholders of SKFA of approximately $35 million; and(g)set out the remuneration for which the plaintiffs proposed to seek creditor approval.(34)On 20 February 2012, Mr Sharp commenced proceedings in the New South Wales District Registry of the Federal Court seeking declarations as to the ownership of the shares in SKFA (Equity Proceedings) along with other orders, including a review of the plaintiffs’ remuneration. The plaintiffs defended themselves in those proceedings and sought their transfer to the South Australia District Registry. Mr Sharp abandoned his application for review of the plaintiffs’ remuneration on 28 March 2012.(35)At a meeting of the creditors of SKFA held on 9 March 2012:(a)SK Foods, LP was admitted to vote with respect to its claim to the Disputed Debt (subject to a set-off), which claim had been formally admitted by the plaintiffs, but which claims they doubted at the time given the receipt of further information as referred to above;(b)the entities associated with Mr Salyer were admitted to vote with respect to their claims to the Disputed Equity, which claims were still to be formally admitted but which the plaintiffs believed to be valid at the time;(c)Mr Sharp objected to the admission of the claims of the entities associated with Mr Salyer for voting purposes, and his solicitor, Ms Jill Milburn, informed the meeting that Mr Sharp would seek to challenge the admission in the courts;(d)Mr Stephen Polczynski, the solicitor for the entities associated with Mr Salyer, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) which the plaintiffs were authorised by resolution of creditors on 17 November 2010 to draw down in the sum of $125,000 plus GST per month, being the total sum of $1,875,000 plus GST covering the period from 1 November 2010 to 31 January 2012, be fixed and approved in that amount. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against;(e)Mr Kevin Smith, the representative of the Deputy Commissioner of Taxation, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) be fixed and approved for the period from 1 November 2010 to 31 January 2012 in the amount of $346,384.43 plus GST. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against; and(f)Mr Smith, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) be fixed and approved for the period from 1 February 2012 to 29 February 2012 in the amount of $137,323.41 plus GST. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against; and(g)Mr Polczynski, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) in a sum not exceeding $125,000 plus GST per month, be approved and paid out of the liquidation of SKFA for the period 1 March 2012 to 31 October 2012, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution save for Mr Sharp who voted against and Mr Smith who abstained.(36)By April 2012, it had become clear to the plaintiffs that Mr Sharp did not want the plaintiffs to continue to investigate the Potential Claims against the Directors and ANZ. The plaintiffs sought the input from the Salyer interests who agreed the plaintiffs should cease incurring fees in relation to such investigations. On the basis of the communications from the interested parties, the plaintiffs suspended their investigations.(37)In June 2012, the stay of proceedings against Mr Salyer was lifted in the United States of America. Accordingly, Mr Sharp was free to pursue proceedings against the Salyer interests.(38)On 4 June 2012, Emmett J in the Equity Proceedings indicated that he would be assisted if the plaintiffs acted as contradictors on Mr Sharp’s applications and to file a notice of contentions.(39)In August 2012, the plaintiffs were advised that Mr Sharp was pursuing summary judgment against the Salyer interests in relation to the Debt and Equity Issues in the United States. The plaintiffs proposed that there be no further action in the Equity Proceedings. Mr Sharp insisted that the plaintiffs proceed to prepare their notice of contentions. The plaintiffs’ notice of contentions was filed on 10 September 2012.(40)In early September 2012, the plaintiffs first considered that the funds held by them in the liquidation may be the proceeds of crime. Following the receipt of advice, the plaintiffs referred the matter to ASIC. The plaintiffs then met with ASIC and representatives of the Australian Federal Police (AFP), to whom the plaintiffs understood ASIC had referred the matter. The plaintiffs provided documents and information to the AFP as requested and in response to a formal notice issued by the Magistrates Court of Western Australia on the application of the AFP in October 2012.(41)On or around 16 October 2012, the plaintiffs provided the Companies’ creditors with reports on the progress of the liquidations. Those reports:(a)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ efforts to obtain the production of documents relevant to their affairs in the United States;(b)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ investigations into the ownership of the Disputed Debt, explained why they had revoked their initial adjudication and provided an overview of the Court proceedings concerning the identity of the correct owner(s);(c)provided the creditors of SKFA and CJVA with an update on the plaintiffs’ investigations into the ownership of the Debt and Equity Issues and provided an overview of the Court proceedings concerning the identity of the correct owner(s);(d)provided creditors with an update on the proceedings concerning the removal of the receivers;(e)provided creditors with an update on the plaintiffs’ adjudication and payment of remaining claims in the winding up of the Companies;(f)informed creditors of an expected surplus payable to the shareholders of SKFA of approximately $40 million; and(g)set out the remuneration for which the plaintiffs proposed to seek creditor approval.(42)At the meeting of the creditors of SKFA held on 1 November 2012:(a)SK Foods, LP was admitted to vote with respect to its claim to the Disputed Debt (subject to a set-off), which claim had been formally admitted by the plaintiffs but which they doubted at the time, given the receipt of further information as referred to above;(b)the entities associated with Mr Salyer were admitted to vote with respect to their claims to the Disputed Equity, which claims were still to be formally admitted but which the plaintiffs believed at the time to be valid; and(c)Mr Polczynski, the solicitor for the entities associated with Mr Salyer, moved a resolution that the plaintiffs’ fees (as liquidators of SKFA) in a sum not exceeding $50,000 plus GST per month, be approved and paid out of the liquidation of SKFA for the period from 1 November 2012 to 31 October 2013, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution save for Mr Michael Rose, the solicitor for SK Foods, LP, who voted against it.(43)At the meeting of the creditors of SSFA held on 1 November 2012:(a)Mr Polczynski, moved a resolution that the plaintiff’ fees (as liquidators of SSFA) for the period 1 July 2012 to 30 September 2012 be fixed and approved in the sum of $7,895.01 plus GST. The creditors present at that meeting voted to carry that resolution; and(b)Mr Polczynski, moved a resolution that the plaintiffs’ fees (as liquidators of SSFA) in a sum not exceeding $10,000 plus GST per month, be approved and paid out of the liquidation of SSFA for the period from 1 October 2012 to 31 October 2013, with any fees exceeding that capped sum requiring separate approval. The creditors present at that meeting voted to carry that resolution.(44)In late November 2012, Mr Sharp obtained summary judgment against the Salyer interests in the United States in relation to, inter alia, the Disputed Debt and the Disputed Equity, and he then applied for recognition of that judgment in the proceedings before Emmett J. In relation to the application for recognition, Emmett J requested that the plaintiffs act as contradictors. Mr Sharp did not speak against the plaintiffs acting as contradictors and his Honour made an order to that effect.(45)Following a hearing, Mr Sharp’s application for recognition was refused by Emmett J on 19 December 2012. Mr Sharp amended the relief sought in the Equity Proceedings to cure the defect underlying Emmett J’s refusal to grant recognition, including the joinder of all of the Salyer interests. Mr Sharp subsequently sought summary judgment in the Equity Proceedings and a trial proceeded before Flick J in March 2013. The plaintiffs were not involved in the trial.(46)In April 2013, the plaintiffs participated in further meetings with the AFP and provided further information as requested.(47)On 15 May 2013, the AFP commenced proceedings in the Supreme Court of Victoria pursuant to the POC Act seeking, inter alia, forfeiture of the surplus assets held by the plaintiffs to the Commonwealth (the POC Act Proceedings).(48)On 30 May 2013, Flick J gave judgment in the Equity Proceedings in Mr Sharp’s favour, in effect granting summary judgment in relation to the Disputed Debt and the Disputed Equity (SK Foods LP v SK Foods Australia Pty Ltd (in liq) (No 3) [2013] FCA 526; (2013) 214 FCR 543). In other words, the application by SK Foods, LP and Mr Sharp was successful. (49)On 10 July 2013, Mr Sharp brought an application in the New South Wales District Registry of the Federal Court seeking orders for the removal of the plaintiffs and for a review of their remuneration. Mr Sharp nominated two of Mr Gothard’s business partners at Ferrier Hodgson as replacement liquidators. The application was opposed by the AFP.(50)In November 2013, a resolution of all of the outstanding issues in the liquidations was reached with the various stakeholders. Specifically, the settlement resolved the POC Act proceedings, the proceedings relating to the receivers and the application to remove and replace the plaintiffs and review their remuneration. A Deed of Settlement was entered into that provided for:(a)according to the plaintiffs, a release in favour of the plaintiffs in relation to their conduct and remuneration claimed to date;(b)remuneration for the plaintiffs up to an amount of $750,000; and(c)the submission of a consent order to the Supreme Court of Victoria that the entirety of the surplus funds held by the plaintiffs be forfeited to the Commonwealth and then on forwarded to:(i)Mr Robert Greeley (as receiver appointed by the United States Bankruptcy Court) with respect to 90% of 1 of 101 shares in SKFA, less an amount $100,000; and(ii)SK Foods, LP and Mr Sharp with respect to 90% of 100 of 101 shares in SKFA.(iii)The 10% balance of the surplus funds was retained by the Commonwealth.(51)The plaintiffs proceeded to draw remuneration up to the $750,000 cap. Mr Sharp objected to the drawing of such remuneration, asserting that the deed did not operate as approval of remuneration. In consequence, the plaintiffs repaid the amounts drawn. On 29 August 2014, the plaintiffs entered into a subsequent Deed of Settlement with Mr Sharp which, according to the plaintiffs, resolved all issues, including the remuneration after November 2013.(52)On or about 24 September 2014, the plaintiffs provided the Companies’ creditors with a joint report on the progress of the liquidations. That report:(a)informed creditors of the retirement of the receivers;(b)informed creditors of the deed of release entered into on 9 September 2014;(c)explained to creditors how the Companies’ taxation affairs had been finalised;(d)informed creditors of a personal injury claim made against SKFA and CJVA, which claim was covered by their insurers; and(e)set out the remuneration for which the plaintiffs proposed to seek creditor approval.(53)At the meeting of the creditors of the Companies held on 21 October 2014, Mr David Porter, the solicitor for Mr Sharp and SK Foods, LP, moved a resolution that the plaintiffs’ remuneration for the period from 19 November 2013 to 12 September 2014 for the liquidations of the Companies be approved in the total amount of $100,000 inclusive of GST. The only creditor present at that meeting, SK Foods, LP, voted to carry that resolution.