Pleash v Gold Coast Property Investments and Management Pty Ltd
[2009] QSC 17
•4 February 2009
SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION
[2009] QSC 17
FRYBERG J
No 709 of 2009
| BLAIR PLEASH and BRENT KIJURINA | Applicant Applicant |
| and | |
| GOLD COAST PROPERTY INVESTMENTS & MANAGEMENT PTY LIMITED (ACN 078 570 653) | Respondent |
BRISBANE
..DATE 04/02/2009
ORDER
HIS HONOUR: This is an application pursuant to section 449E(1)(b) of The Corporations Act by the administrators of a company for the Court to fix their remuneration.
The applicants, Mr Pleash and Mr Kijurina, were appointed as administrators of Gold Coast Property Investments & Management Pty Limited on 7 July 2008 apparently after some days of discussions with the sole director of that company. Two days later the National Australia Bank appointed receivers to the company pursuant to a floating charge and took possession of all of the assets of the company.
The administrators proceeded to carry out the tasks which were required to be carried out by the Act. A first meeting of creditors was duly held. The major meeting of creditors was convened on the 11th of August and that meeting was adjourned to be resumed on the 13th of October. When it resumed on that date, the creditors resolved that the company be placed into liquidation and one of the administrators was appointed as liquidator. The administrators took their claim for remuneration to that meeting. The creditors rejected it; that is to say, they did not fix the remuneration pursuant to section 449E(1)(a). Hence the present application.
Pursuant to rule 9.2 of the rules for proceedings under the Corporations Act the administrators served notice of their intention to apply for the present order. Pursuant to subrule (3) of that rule, the National Australia Bank sent the administrators a notice of objection to the remuneration claimed by the administrators on the basis that the remuneration claimed was excessive in all the circumstances. The notice particularised the circumstances which it alleged gave rise to that state of affairs. The objection as particularised was categorised by Mr Pleash, one of the administrators, as containing four main reasons for objecting. They were:
That the hourly rates charged by the administrators were excessive;
That the administration was not complex, and that was particularly so having regard to the shortness of the period during which the administrators had control of the company;
That the administrators could not have carried out any meaningful investigation of the company's business affairs, property and financial circumstances because they did not have a copy of the company's books and records; and
That the professional fees incurred by the administrator's staff for travel expenses were unnecessary because of the employment of staff from the Melbourne office and the Sydney office of the administrator's firm.
I would add a further category of objection from my reading of the notice, that is, that the proportion of time spent by the administrators personally was excessive.
I propose to consider those grounds in turn. They were dealt with by Mr Pleash in that order in his affidavit, save for the last one.
Mr Pleash deposed that Hall Chadwick, his firm, is a nationally-based firm with offices in Sydney, Penrith, Parramatta, Melbourne, Gold Coast and Brisbane. He deposed that the charge-out rates of Hall Chadwick were standardised nationally to ensure consistency in its billing methods. He deposed that the fees charged in the present case were not dissimilar to the average fees charged by insolvency practitioners nationally.
The notice of objection set out the scale of rates charged by the administrators for the work of partners, associates, senior managers, managers, supervisors, seniors, intermediates, juniors and support staff, respectively, and also set out the rates charged by the receivers for positions of similar but not identical designations.
It asserted that the latter which, particularly in relation to the more senior practitioners, were generally consistent with those of other Queensland firms which conduct insolvency work and which are of a similar size to Hall Chadwick and Grant Thornton, the firm of which the receivers were members. Those rates were, as I have said, significantly lower than those of Hal Chadwick.
It seems that Hall Chadwick has standardised its fees nationally for reasons of its own internal convenience. The evidence before me makes no attempt to justify why such a practice is warranted when the firm is operating in an environment where expenses are likely to be less than would be incurred in Sydney and Melbourne. This particular administration was carried out on the Gold Coast where Hall Chadwick had an office.
The material before me makes no attempt to analyse how the costs of the administrators operating on the Gold Coast compare with the costs which would be incurred in operations in Sydney but I think I may take judicial notice of the fact that rents and probably other expenses are significantly higher in Sydney and Melbourne than they are on the Gold Coast. In any event it is certainly clear that charge out rates asserted in the notice of objection are asserted to be significantly lower and that assertion is unchallenged by Mr Pleash's affidavit.
He testified that the fees charged by Hall Chadwick were not, in his belief, dissimilar to the average fees charged by insolvency practitioners nationally but he did not suggest that they were similar to fees generally charged in Queensland.
When administrators are appointed to conduct the business of a company the primary objective of the appointment is that set out in section 435A of the Corporations Act. That section includes the maximising of the chances of the company or as much as possible of its business continuing in existence. That objective requires administrators to conduct their affairs with regard to the welfare of the company. It is unnecessary in this case to consider whether they owe a fiduciary duty.
In setting their charges the administrators must consider this objective and the welfare of the company and must consider what level of rates might normally be expected to be charged by administrators in the location where the company carries on business and where the administration ought properly to be conducted.
The state of the evidence does not satisfy me that fees as high as those charged by Hall Chadwick in the present case are justified.
If that were the only point the matter could be adjourned and the fees recalculated using the basis which is consistent with Queensland practice and which appears in the notice of objection. However, there are other points.
The second type of objection was that the administration was not complex as the administrators did not have control of the company subsequent to 9 July 2008. The administrators submitted that the bulk of the expenses incurred by them was incurred in the period from 7 to 9 July. That is true in the sense that some $30,000-odd of the total of $80,000 was incurred in that period. I do not find it surprising that the highest proportion of expenses should be incurred in the early part of the administration.
I do find it surprising that once control of the assets was lost such a considerable amount of work remained to be done.
The report of the administrators to the major meeting of creditors set out a certain amount of what had already occurred but it is apparent that a considerable amount of work charged for occurred subsequent to that report. I shall revert to that shortly.
The third category of objection was that the administrators could not have investigated in a meaningful way for reason of lack of possession of the company's books.
Mr Pleash in his affidavit deposed that in the first three days of the administration he and his staff had extracted the majority of books and records required to complete their investigations. As a result, he said, there was no need to contact the receiver and manager for additional information to assist in his investigation of the company's affairs.
He pointed out in his affidavit that the time sheets exhibited to his first affidavit showed the investigations carried out prior to the appointment of the receivers and managers. This point, it seems to me, is relevant to the previous category of objection in that the work which was done after the receivers were appointed was substantial.
A matter of concern is just what was involved. Mr Pleash deposed that while the nature of the company's business was not overly complicated it was by no means simple. There were, he said, a number of factors which increased the work undertaken during the administration. First was the size of the rent roll, one of the largest in Australia. As a result, additional work was undertaken during the first three days of the administration in having to consult with the various staff regarding the trading of the rent roll and in particular dealing with property managers, landlords and tenants. There seems no reason to doubt that statement.
He went on to say that a significant number of hours were spent investigating whether the director had misappropriated trust account moneys. That investigation included several lengthy interviews with the director, business manager and employees of the company regarding the company's trust accounts and a comprehensive review of the company's books and records. It also included a review of the audit.
The report to creditors dated 1st August 2008 discussed the possibility of taking action against the director. The discussion related to a number of potential actions against the director. The first was for insolvent trading. That discussion concluded that further investigations were required to fix the precise date of insolvency and hence the quantum of any potential claim with respect to insolvent trading. It was asserted that such investigations would be facilitated in the event that creditors resolved to adjourn the forthcoming meeting.
The second type of claim discussed was unfair preferences. The administrators reported that to date no transactions of this nature had been identified but that investigations would be facilitated in the event creditors resolve to adjourn the meeting.
The third type of transaction was uncommercial transactions. Again, the administrators reported that while no transactions of this nature had been identified the adjournment of the forthcoming meeting would enable further detailed investigations to be conducted in respect of that issue.
The fourth category was insolvent transactions within the meaning of section 588FC of the Act. Again, the administrators stated that the adjournment of the meeting would enable further detailed investigation to be conducted in respect of that issue.
The next category was unfair loans. Again, a similar recommendation regarding further investigations on the adjournment was made.
Finally, unreasonable director-related transactions were considered and again it was said that the adjournment of the meeting would enable further detailed investigations to be conducted in respect of that issue.
It may be inferred that the subsequent decision to adjourn the meeting was based on those statements. It seems clear that a considerable part of the administrator's fees would not have been incurred had the meeting not been adjourned but rather a resolution then passed to wind-up the company.
The report to the major meeting did not refer to any consideration of whether the director had misappropriated trust account moneys. I find it puzzling, if it was true that a significant number of hours were spent investigating that question, that nothing should have been said to the creditors about it. Mr Pleash does not identify what he means by "a significant number of hours" but I take it that it must refer to time spent giving rise to a significant proportion of the fees claimed by the administrators.
A supplementary report to creditors dated 3 October 2008 was prepared for the adjourned meeting. It, too, does not refer to the question of misappropriation of trust account moneys. Like the earlier report, it does not suggest that the investigations which were detailed in the administrator's charges in the report were specifically linked to such a matter. It does refer to insolvent trading and voidable transactions. It reported that there may be actions available to a liquidator in relation to insolvent trading and voidable transactions but that a liquidator would, however, be required to gather sufficient evidence to support such actions. The report reminded creditors that the administrators were not in possession of all of the company's books and records as a result of the receiver and manager having to retain them in order to trade the company's businesses. It continued: "Once all of the books and records of the company are recovered by the administrator and/or liquidators I will then be in a position to determine whether there is sufficient evidence available in order to commence such actions."
That statement is in evident contradiction of the earlier statement that the adjournment of the meeting would permit the investigations to be carried out. It also seems to contradict the thrust of the assertion in Mr Pleash's affidavit that he had the majority of the books and records required to complete the administrator's investigations of the company during the first three days of the administration. It appears from that part of the report that no further investigations were carried out, but that is inconsistent with the charging which seems to have charged for further investigations.
If the administrators were in possession of the majority of the books needed, it would surely not have been difficult to obtain copies of those outstanding from the accountants to enable the appropriate investigations to be completed.
I am unable to be satisfied that it is correct that a significant number of hours were spent investigating whether the director had misappropriated trust account moneys.
I am not satisfied that the level of complexity of the administration subsequent to the appointment of the receivers was such as to warrant the incurring of fees to such an extent as $50,000-odd.
Mr Pleash also referred to the significant time spent preparing detailed reports to creditors. I accept that there must have been significant time spent in this regard, although the reports show a number of signs of having been created from templates kept on a word processor. He also refers to the company having had a high number of ex-employees who claimed to be creditors and which resulted in the administrators and their staff spending considerable hours dealing with the claims of over 100 priority creditors. I have no reason to doubt that statement.
The fourth category of objection was to professional fees incurred by staff for travel expenses from Melbourne and for staff employed in Sydney and Melbourne. As to the latter, Mr Pleash deposed that it was usual practice for partners at Hall Chadwick to instruct staff who had the requisite expertise and availability to work on the administration of a company and that this sometimes includes instructing staff to work on matters that are not within the State in which they usually reside. The administrators themselves were not on the Gold Coast. Mr Pleash was there at the time of his appointment but it seems that he spent his time between the Sydney and Gold Coast offices and that he resides in Sydney. Mr Kijurina was at all material times in Sydney.
In the circumstances, one would have expected evidence from the administrators regarding the extent to which the costs of the administration were increased by the appointment or retention of administrators and staff who were interstate or a statement that those costs were not increased by those factors. In one sense, of course, that has been dealt with by the fact that Hall Chadwick charges the same for staff wherever they may be located but that is not the same as saying that costs were not increased. Communications costs and travelling costs, for a start, are costs which one might expect would be higher by the use of interstate persons.
The question simply is not directly addressed, save in respect of one employee. That employee is Mr Calvisi who was instructed by the administrators to fly to the Gold Coast on the 9th of July 2008 to conduct an audit of the company's trust account. There is no reason to doubt the need for an audit of the company's trust account. However, it is not suggested by the administrators that they lacked employees in the Gold Coast or even the Brisbane offices who were capable of carrying out an audit. One would be surprised if a large national firm did not have in their Brisbane or Gold Coast offices employees who could carry out an audit of a company's trust account. Mr Pleash does say in his affidavit that Mr Calvisi was the only available senior staff member with forensic accounting experience for the matter and that he was "therefore instructed to fly to the Gold Coast." However, there is no explanation of why forensic accounting experience was of assistance; in particular, why forensic accounting experience should be needed if there was a suspicion of misappropriation of trust funds, was not explained. One would have thought that reasonably qualified and experienced auditors would be quite capable of determining whether that had occurred. How forensic experience was necessary is simply not explained.
I am not satisfied, on the material before me, that this expense was warranted. It is not possible to identify to what extent the cost of the audit was increased by the use of Mr Calvisi.
Finally, there is the question of whether the amount of time spent by the administrators personally was excessive. I am not satisfied that it was excessive. The hours spent by the administrators in total were 54.1 out of 228 hours altogether. That does not seem to me, on the face of it, to suggest an unreasonable amount of the administrator's personal time having been devoted to the matter. In the absence of evidence to the contrary, I would not be prepared to draw an inference adverse to the administrators on that basis.
In summary, then, I am not able to determine on the evidence before me what is an appropriate amount of remuneration to allow for the administrators in this case.
In my judgment, the appropriate allowance would be calculated by having regard to the rates of charge used by insolvency practitioners generally in South East Queensland; by investigating whether and, if so, to what extent the costs of the administration were increased by reason of the administrators and their staff being interstate and not at the scene of the administration; and by investigating in more detail than has been presented to me how many hours were spent after the appointment of the receivers and for what purposes. The detail available just does not satisfy me that the time which was spent was all necessary, and it does not enable me to draw a conclusion as to what would have been a reasonable amount.
I invited submissions from the applicant regarding what course I should take if I reached that situation but no submission was forthcoming on that point.
In the circumstances, having regard to the state of the present material and the fact that there would appear to be no reason why a further application could not be made on adequate material, it seems to me that the best course to take is simply to dismiss the application.
The order of the Court is application dismissed.
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