Onefone Australia Pty Ltd v One.Tel Ltd

[2009] NSWSC 540

Reported Decision: 72 ACSR 301

New South Wales

Supreme Court

CITATION:	Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 540
HEARING DATE(S):	19/03/09
JUDGMENT DATE :	12 June 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Short minutes to be brought in.
CATCHWORDS:	CORPORATIONS - winding up - special purpose liquidator - assessment and funding of special purpose liquidator's expenses
CATEGORY:	Principal judgment
CASES CITED:	Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447 Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335; (2008) 69 ACSR 290
PARTIES:	Onefone Australia Pty Limited - First Plaintiff DCA Resources Australia Pty Limited - Second Plaintiff Pacific Finance Group Pty Limited - Third Plaintiff Concept Systems (Australia) Pty Limited - Fourth Plaintiff One.Tel Limited (in liquidation) - First Defendant Steven Sherman - Second Defendant Peter Walker - Third Defendant
FILE NUMBER(S):	SC 5291/03
COUNSEL:	Mr S M Golledge - Special Purpose Liquidator
SOLICITORS:	NOT Lawyers - Special Purpose Liquidator

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY 12 JUNE 2009

5291/03 ONEFONE AUSTRALIA PTY LIMITED & 3 ORS v ONE.TEL LIMITED & 2 ORS

JUDGMENT

1 The applicant is the special purpose liquidator of One.Tel Ltd. The circumstances of his appointment and aspects of his administration are referred to in a number of previous judgments, most recently Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335; (2008) 69 ACSR 290. I need not repeat here the brief chronology recited in the last-mentioned judgment (which I shall call “the December 2008 judgment”).

2 I am dealing now with another application by the special purpose liquidator that arises from what can only be described as the unsatisfactory circumstances that the general liquidators of One.Tel cannot properly exercise any oversight of expenditures by the special purpose liquidator (see paragraph [14] of the December 2008 judgment), that the special purpose liquidator has no insight into the financial resources available in the winding up and no capacity to engage in any kind of prioritising of expenditures (see paragraph [11] of the December 2008 judgment), that the committee of inspection in the One.Tel winding up has no power to control or monitor expenditure by the special purpose liquidator (see paragraph [54] of the December 2008 judgment) and that no statutory process of screening or evaluation exists in relation to a liquidator’s recoupment of expenses (paragraph [52] of the December 2008 judgment).

3 At an earlier stage of the special purpose liquidator’s administration, the committee of inspection undertook on an informal basis the function of monitoring expenditures by the special purpose liquidator. The basis on which it did so was described by White J in a judgment of 20 December 2006 (Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447) at [10]:

“As a matter of practice, the special purpose liquidator has been providing the members of the Committee of Inspection with at least summaries of the legal expenses incurred, and has provided the members of the Committee with a budget of future expenditure on legal costs. The Committee has de facto assumed a greater role in overseeing such expenditures than would normally be the case.”

4 The default nature of the committee’s role was then referred to by his Honour at [11] and [12]:

“It is not appropriate that the special purpose liquidator be required to make repeated applications to the Court for approval of his funding. Such applications themselves carry costs. Nor is the Court in a position to make an informed assessment as to the appropriateness of the expenses.

It appears to me that, by default, the Committee of Inspection should perform the role, in the particular circumstances of this case, of considering the appropriateness of the special purpose liquidator’s expenditure on legal costs.”

5 Stresses later developed. They formed part of the basis for the applications that were dealt with in the December 2008 judgment. The committee was reluctant to continue with its monitoring role.

6 In the December 2008 judgment, I made observations about what might happen if the committee ceased acting in that respect:

“[62] In the absence of assessment by the committee of inspection, that re-assurance can, I think, be best achieved by a regime under which directions are from time to time sought and given by the court as to whether the general liquidators will be justified in treating particular expenses incurred by the special purpose liquidator as ‘properly incurred’ by him. Of course, the general liquidators do not need any direction of the court in this respect. But they will no doubt prefer to work according to such guidance or re-assurance.

[63] I am conscious of the observations made by White J at paragraph [11] of his judgment of 20 December 2006 (see paragraph [17] above). And it must be accepted that it is far from ideal for the special purpose liquidator to have to keep coming back to court. But if the default mechanism to which White J referred to at paragraph [12] does not operate in relation to particular expenses, that seems to be the only available course, unless the general liquidators see no need for the particular form of guidance and re-assurance.

[64] Now that the litigation that came to a head before me on 4 to 7 November 2008 has passed, it may be that the committee of inspection will again see its way clear to playing the informal role of overseeing the special purpose liquidator’s expenditure that it was previously willing to play. If that should turn out to be the case, matters may still be dealt with in accordance with the regime set out at paragraph [18] above, which regime will continue in force.”

7 The hope that the committee of inspection might continue to monitor the special purpose liquidator’s expenditures has not been realised.

8 The special purpose liquidator refers in his affidavit to steps taken to obtain informal approval of the committee of inspection of the legal fees incurred in the special purpose administration in the period July to December 2008. The committee resolved as follows on 29 January 2009:

“That the SPL’s legal expenses claimed for the period 1 July 2008 to 31 December 2008 in the total sum of $1,208,982.40 inclusive of GST be approved for payment forthwith in the amount of $805,988.18 inclusive of GST (being two thirds of the total legal expenses claimed), provided that the SPL forthwith make application to the Court for the approval of the total legal expenses claimed for the relevant period. It is noted that:
(a) the COI is unable to determine whether the SPL’s legal expenses for the relevant period were properly incurred;
(b) the SPL will repay any amount of legal expenses for the relevant period which is not approved by the Court.”

9 Two matters have now been brought to the fore. The first concerns the specific matter of the expenditure on legal fees in the period mentioned. The second concerns the question whether any particular regime should be put in place for the approval or monitoring of the special purpose liquidator’s expenditures for the future.

10 In relation to the first matter, the court has been given an account by both the special purpose liquidator and his solicitor of the legal work to which the fees for the period July to December 2008 relate. The special purpose liquidator says in his affidavit:

“I have carefully reviewed all bills of costs for legal expenses for July to December 2008 referred to in the MFO Affidavit [that is, the solicitor’s affidavit]. I consider all attendances and charges to be reasonable and necessary for me to properly perform my duties as SPL in accordance with the orders of the Court. A very substantial part of the legal expenses relate to my dealings with the COI in the above period, including my application to the Court on 2 October 2008 for the payment of part of my remuneration and legal expenses in the period prior to July 2008, for which Orders were made on 12 December 2008 that my proper costs and expenses in making that application be paid out of the assets of One.Tel.”

11 Produced to the court are the itemised bills of solicitors and counsel running to almost 200 pages. Without conducting some form of inquisition and then engaging in a detailed assessment, the court cannot know whether the legal expenses were properly incurred. All that can be said is that, on the face of things, the various billed items are connected with the due performance of the special purpose liquidator’s functions.

12 There is, of course, no requirement that a liquidator submit his or her expenses for scrutiny by the court. In the ordinary course of a liquidator’s administration, the liquidator will incur various expenses and simply pay them out of funds available in his or her hands. The problem here is that the special purpose liquidator has no direct access to funds.

13 In the peculiar circumstances of the special purpose liquidator’s administration as they now exist, I can think of no sensible alternative but to have the general liquidators provide funds to enable the special purpose liquidator to pay expenses incurred by him, without any prior screening of those expenses – provided, however, that the expenses are accommodated by “free cash” as notified, from time to time, to the special purpose liquidator by the general liquidators.

14 The special purpose liquidator appears to have established a system of communication with the general liquidators under which they inform him of cash not otherwise committed in the winding up. It is the amount of cash so notified from time to time that I call “free cash”.

15 There is no point in persisting with attempts to have the committee of inspection approve the special purpose liquidator’s expenditures. In saying this, I intend no criticism at all of committee members. I am sure that they often find themselves in the position referred to at paragraph [11] above. It is, however, desirable that the special purpose liquidator continue to consult with the committee on the general question of expenditures and that he provide periodic reports to the committee concerning expenditures actually made. That will provide some measure of check.

16 I will ask that short minutes be brought in dealing with the following:

(a) appropriate clearance or comfort for the general liquidators to provide funds to cover the special purpose liquidator’s legal expenses for the period July to December 2008;
(b) some form of protocol for the general liquidators to keep the special purpose liquidator informed of “free cash”;
(c) a system under which expenses incurred by the special purpose liquidator are notified to the committee of inspection in such a way that the committee comes under no expectation to approve or disapprove the incurring but may, if it thinks fit, raise questions or concerns with the special purpose liquidator; and
(d) some provision or expectation to the effect that the special purpose liquidator will seek the guidance of the court if any such questions or concerns are raised by the committee.
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