Re Aohai Pty Ltd
[2017] VSC 414
•21 July 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2016 04099
IN THE MATTER of AOHAI PTY LTD (ACN 151 602 970)
| COMMISSIONER OF STATE REVENUE | Plaintiff |
| v | |
| AOHAI PTY LTD (ACN 151 602 970) | Defendant |
JUDGE: | MATTHEWS JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 June 2017 |
DATE OF JUDGMENT: | 21 July 2017 |
CASE MAY BE CITED AS: | Re Aohai Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 414 |
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CORPORATIONS – External administration – Application by liquidator for remuneration – Prima facie case for remuneration and expenses established – Quantum of remuneration – Remuneration for work in connection with sale of properties – Whether claim for expenses should include the GST payable on those expenses – IMO Traditional Values Management Limited (in liq) [2012] VSC 650 (14 December 2012) – Thackray v Gunns Plantations (2011) 85 ACSR 144 – Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 – Corporations Act 2001 (Vic), s 473.
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APPEARANCES: | Counsel | Solicitors |
| For the Liquidator | Mr C M Fenwick | DibbsBarker |
For Mr Hai He | Mr A J Purton | Kane Lawyers |
JUDICIAL REGISTRAR MATTHEWS:
Introduction
By an interlocutory application filed 30 March 2017 (‘Remuneration Application’), Ms Rachel Elizabeth Burdett-Baker seeks orders determining her remuneration and expenses for the performance of her responsibilities as the liquidator of the defendant company Aohai Pty Ltd (‘Aohai’).
Pursuant to orders made by this Court on 23 November 2016, Aohai was wound up and Ms Burdett-Baker was appointed liquidator. The petitioning creditor was the named plaintiff in this proceeding, the Commissioner of State Revenue.
On 23 December 2016, Mr Hai He, Aohai’s sole director and shareholder, made an application under s 482(1) of the Corporations Act 2001 (Cth) (‘the Act’) that the winding up of Aohai be terminated (‘Termination Application’). This application was served on Ms Burdett-Baker on 10 January 2017.
On 6 February 2017, prior to the hearing of the Termination Application, Mr He paid the sum of $185,000 into the trust account of Cor Cordis (the firm of which Ms Burdett-Baker is a partner) (‘Trust Fund’). The purpose of this payment was to make sufficient provision for Ms Burdett-Baker’s remuneration and costs, which was one of the conditions she had made for providing her support and assistance with the Termination Application.
On 10 February 2017, orders were made by Gardiner AsJ terminating the winding up of Aohai, including orders that Mr He was to pay the remuneration and costs (including the costs of the Termination Application) of Ms Burdett-Baker to be agreed or, in the absence of agreement, to be assessed by the Court.
Mr He and Ms Burdett-Baker were not able to reach agreement as to her remuneration and costs and on 30 March 2017 Ms Burdett-Baker filed the Remuneration Application, in which she seeks the following:
(a) fixing of the liquidator’s remuneration in the amount of $80,493.60;
(b) fixing of the liquidator’s costs, including the costs of and incidental to the Termination Application, in the amount of $96,061.16;
(c) permitting the liquidator to draw down from the Trust Fund the amounts referred to in (a) and (b) above; and
(d) any surplus funds leftover in the Trust Fund after that drawing down be paid by the liquidator to Mr He.
In support of her application for approval of her remuneration and expenses in the amount of $176,554.76 (being the total of (a) and (b) in the preceding paragraph), Ms Burdett-Baker relies on an affidavit she swore on 28 March 2017 (‘First Affidavit’).
Ms Burdett-Baker also relies on a further affidavit that she swore on 13 June 2017 (‘Second Affidavit’), in which she deposes to further material provided to Mr He since filing the Remuneration Application and exhibits an updated remuneration and costs claim (‘Final Updated Claim’).[1] This includes the remuneration and costs incurred in the winding up of Aohai, the Termination Application, and the Remuneration Application. The Final Updated Claim comes to a total of $206,367.40, such that Ms Burdett-Baker now seeks orders that all of the $185,000 in the Trust Fund be drawn down for payment of her remuneration and costs and that Mr He pay the balance of $21,367.40 to her.
[1]Second Affidavit, ‘REB-14’.
Mr He does not completely oppose the Remuneration Application. Rather, he argues that the remuneration and costs should be fixed at a lesser sum and that after drawing on the Trust Fund for that amount, the balance remaining should be returned to him.
Mr He relies on an affidavit he affirmed on 18 May 2017 and one from his solicitor, Michael Kane, sworn on 2 June 2017.
Counsel for Ms Burdett-Baker and for Mr He both provided the Court with written outlines of their submissions, which I have found helpful. In addition to those, I have had regard to all matters raised in the oral submissions and affidavit material.
The named plaintiff in the proceeding, the Commissioner for State Revenue, has not played an active role in the proceeding since the winding up order was made.
Pursuant to orders made on 13 June 2017 on the Court’s own motion, the Remuneration Application has been referred to me for hearing and determination.[2]
[2]Supreme Court (Corporations) Rules 2013, 16B.2(3).
Background
Aohai was in the business of property development. When the winding up order was made, it was the registered proprietor of two properties: one situated at 20 Oxford Street, Camberwell (‘Camberwell Property’); and another situated at 14 Mullum Road, Ringwood (‘Ringwood Property’) (together, ‘the Properties’). The Commissioner for State Revenue had petitioned for Aohai’s winding up on the basis of unpaid land tax in the amount of $12,202.35. At that time, Aohai had other creditors, including the National Australia Bank (‘NAB’), which was the major secured creditor and was owed approximately $3.6 million. Ms Burdett-Baker deposes that NAB consented to her selling the above-mentioned properties so that it could be paid pursuant to its securities.
In the Final Updated Claim, Ms Burdett-Baker seeks the following amounts:
Item No. Description Amount (excl GST) Remuneration claimed: 1 23 November 2016 to 12 June 2017 $77,606.00 2 13 June 2017 to completion $4,000.00 3 GST applicable on remuneration $8,160.60 Total amount of remuneration claimed (incl GST) $89,766.60 Disbursements claimed: 4 Externally provided professional services (incl GST) $108,911.94 5 Externally provided non-professional services (incl GST) $5,893.59 6 Internal disbursements (excl GST) $1,632.06 7 GST on internal disbursements $163.21 Total amount of disbursements claimed (incl GST) $116,600.80 Total (incl GST) $206,367.40
The total amount of disbursements claimed as set out above includes $10,586.26 in respect of GST payable on disbursements.
Applicable Principles
The Court has power to determine a liquidator’s remuneration under s 473(3)(b)(ii) of the Act.[3] The starting point for an application of this type is s 473(10) of the Act, which provides:
[3]Although certain amendments to the Act commenced on 1 March 2017, including the repeal and substitution of s 473, the Act applies as if the amendment to s 473 commences on 1 September 2017. See Corporations Regulations 2001, Part 10.25 – Transition to Part 3 of the Insolvency Practice Schedule (Corporations).
In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work performed by the liquidator was reasonably necessary;
(b)the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;
(c)the period during which the work was, or is likely to be, performed by the liquidator;
(d)the quality of the work performed, or likely to be performed, by the liquidator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;
(f)the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
(i)whether the liquidator was, or is likely to be, required to deal with:
(i) one or more receivers; or
(ii) one or more receivers and managers;
(j)the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors;
(k)if the remuneration is ascertained, in whole or in part, on a time basis:
(i)the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and
(ii)whether the total remuneration payable to the liquidator is capped;
(l) any other relevant matters.’
The principles concerning an application of this type are well established and have been referred to in many decisions of this Court. Gardiner AsJ summarised those principles in IMO Traditional Values Management Limited (in liq)[4] (‘Traditional Values’) at paragraphs [18] to [25]. For convenience I adopt his Honour’s summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[5]
[4][2012] VSC 650 (14 December 2012).
[5](2011) 85 ACSR 144 (‘Thackray’).
At [60], her Honour summarised the principles to be applied by reference to the decision of the Full Court of the West Australian Supreme Court in Venetian Nominees v Conlan as follows:
(a)A summary procedure was involved, not unlike that applicable to the taxation of solicitor’s costs, which is not necessarily subject to all the rules that would apply in an action.
(b)The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment ‘bringing an independent mind to bear on the relevant issues’ even though at that point there is no objector.
(c)There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.
(d)If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made.
(e)If there are objectors to the claim or any part, the Court should then establish the validity of those objections.
At [63] and [64] of Thackray, her Honour stated:
…. the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers. The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work and justification of the hours spent. That amount can then be adjusted up or down to reflect other factors including:
(a) complexity above the norm for the kind of work involved;
(b) novelty and difficulty of the issues faced;
(c) the ultimate outcome obtained by the claimant.
The Court is looking for evidence of overcharging. Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided. But there is no universal approach applicable in all circumstances by which the “reasonableness” of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[6]
[6]Traditional Values [60], citing Thackray (2011) 85 ACSR 144, [63]-[64] (citations omitted).
The parties were in agreement regarding the applicable principles.[7]
[7]The submissions from both counsel referred to a number of authorities, all of which have been considered but only some of which are referred to here.
The parties did not address the question of the Court’s power to approve the liquidator’s costs. From the way the application was approached, it was clear that they intended that the Court should approve the liquidator’s costs.[8] That is apparent from the terms of the Remuneration Application and the submissions made by the parties, and it is consistent with the orders made by Gardiner AsJ on 10 February 2017. For the sake of completeness, I indicate here that for the reasons set out by Gordon J (as her Honour then was) in Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) (‘Starpicket’),[9] I am satisfied that the Court has the power to review and determine Ms Burdett-Baker’s claim for disbursements.
[8]Noting that disbursements/costs/expenses are terms used interchangeably in this context, as distinguished from fees.
[9][2013] FCA 699 (17 July 2013) [15]–[21].
Consideration
Counsel for Ms Burdett-Baker commenced his submissions by outlining the six issues he said emerged from the written outlines as being in contention. Mr He’s counsel agreed that these were the six issues requiring consideration.
Ms Burdett-Baker submitted, and Mr He agreed, that she had made out a prima facie case for payment of her remuneration and expenses, in the meaning referred to in paragraph 17 above. I agree; Ms Burdett-Baker’s affidavits establish this, and it is not necessary for me to traverse that further. The real issue in dispute is the quantum to which Ms Burdett-Baker is entitled: counsel agreed that I should approach this by taking the Final Updated Claim as the starting point and then dealing with the six issues identified.
Mr He confirmed that he did not dispute the rates charged by Ms Burdett-Baker for her fees and that of her staff. While he noted that there were two associate directors working on the matter, he accepted that there had been an appropriate level of delegation of the tasks undertaken as part of the liquidation and that there did not appear to be duplication between those two associate directors.
I will now address each of the six issues identified by counsel in turn, briefly setting out the parties’ positions and then my findings in relation to each.
Issue 1: Remuneration for work in connection with the sale of the Properties
Ms Burdett-Baker’s counsel stated that two alternative time periods were applicable to this issue, and estimated the remuneration amounts for those two periods, as follows:
(a) the period between 29 November 2016 and 20 January 2017 ($24,000); alternatively
(b) the period between 20 December 2016 and 20 January 2017 ($7,600).
The significance of these dates is this: Mr He submits that Ms Burdett-Baker should not have continued work on the sale of the Properties from the time that he indicated to her that he planned to seek orders for the termination of the winding-up of Aohai, which was on 29 November 2016. Alternatively, Mr He submits that Ms Burdett-Baker should have ceased work on the sale of the Properties from 20 December 2016, that is, the date upon which she was provided with a copy of his draft affidavit for the foreshadowed application. 20 January 2017 was the date that Ms Burdett-Baker put the sale of the Properties on hold.
Counsel for Mr He confirmed that these were the applicable time periods for this issue and that for the purposes of this application, Mr He agreed that these were the estimated amounts.
Ms Burdett-Baker submits that she has powers and responsibilities under s 477 of the Act, including to:
(a) carry on the business of Aohai so far as is necessary for the beneficial disposal or winding up of that business (sub-section 1(a));
(b) sell or otherwise dispose of, in any manner, all or any part of Aohai’s property (sub-section 2(c));
(c) appoint an agent to do any business that she is unable to do, or that it is unreasonable to expect her to do, in person (sub-section 2(k)); and
(d) do all such other things as are necessary for winding up Aohai’s affairs and distributing its property (sub-section 2(m)).
In exercising these powers, Ms Burdett-Baker submitted that she has responsibilities to a range of stakeholders, including creditors, shareholders, regulators, the Court, and the community. Primarily, she has a duty to creditors to realise the assets of Aohai and to pay creditors.
Aohai’s principal assets were the Properties, over which NAB had security. Ms Burdett-Baker obtained NAB’s consent to selling the Properties and then commenced that process. She submits that to have done otherwise would have risked nothing of any substance being done in the liquidation, and that it was reasonable to have taken the steps for the sale of the Properties when she did, so that the Properties could be cleaned and the marketing materials prepared.
Counsel for Ms Burdett-Baker took me to the judgment of Gordon J in Starpicket. In that case, the liquidation of the subject company had, like this case, been terminated by the Court. At [42] and [43], her Honour stated:
As to the second complaint, there is no basis for the suggestion that the Liquidator should have ceased performing his duties as Liquidator of Starpicket by reason of his being put on notice of Starpicket’s intention to apply for orders setting aside his appointment. On the contrary, it would have been inappropriate and impermissible for him to do so. The Liquidator had been appointed by order of this Court and had an obligation to continue to perform his duties accordingly.
Nevertheless, as the Liquidator was aware of Starpicket’s application, he could not simply continue to act without regard to the possibility that his appointment might be terminated. The Liquidator was required to exercise his professional judgment as to what work was reasonable and necessary prior to the hearing and determination of Starpicket’s application.[10]
[10]Starpicket, [42]–[43].
Ms Burdett-Baker submits that she took the approach outlined in Starpicket: once the Termination Application had been served on her on 10 January 2017, such that there was an actual application, rather than the possibility of one, she took steps to place the sale process on hold. She halted the sale of the Properties on 20 January 2017, having first taken advice and obtained the secured creditor’s consent.
Counsel for Mr He agreed with the applicable principles and that the passages of Starpicket applied in this case. He confirmed that Mr He accepted that the liquidator doesn’t have to immediately down tools upon finding out that a person has plans to seek the termination of the winding-up. He said that the question is whether in this liquidation it was appropriate for Ms Burdett-Baker to do what was done.
Mr He submits that the sale of the Properties was not urgent. He is particularly critical of Ms Burdett-Baker having signed exclusive auction authorities with the selling agents on 17 December 2016 (for the Camberwell Property) (‘the Camberwell Authority’) and 20 December 2016 (for the Ringwood Property) (the ‘Ringwood Authority’) (together, the ‘Auction Authorities’).[11] By signing the Auction Authorities, Mr He says that Ms Burdett-Baker understood she was committing Aohai to obligations to the selling agents, including the payment of sales commissions.
[11]The Auction Authorities, while with different selling agents, were in materially identical terms. The Auction Authorities can therefore generally be considered together, however where necessary I will deal with each separately.
Mr He submits that Ms Burdett-Baker should not have signed the Auction Authorities when she did as:
(a) there was some doubt as to whether the sales would go ahead (by virtue of his indication that he would be applying for a termination of the winding-up);
(b) the auction dates were some time away: 25 February 2017 for the Camberwell Property and 2 March 2017 for the Ringwood Property; and
(c) Ms Burdett-Baker’s office was closed for the Christmas period until 9 January 2017, so no instructions in respect of the sales would be given during that time.
Mr He submitted that Ms Burdett-Baker carried out tasks (including signing the Auction Authorities) in December, knowing they were not going to be actioned until January. He says that if she had waited until January it would have been apparent that these tasks did not need to be done. As the Properties were only ever going to be sold in February or March, it was not necessary to incur selling expenses or fees at the time that they were.
Mr He also submitted that Ms Burdett-Baker did not tell him she was going to put the Properties on the market and that if she had, he may have done something about his Termination Application earlier. In my view, Ms Burdett-Baker had no obligation to tell Mr He this, and what he may or may not have done in response is pure speculation. I do not accept Mr He’s submission in this regard. Further, Ms Burdett-Baker had informed Mr He on 9 December 2016 that until there had been a determination by a court to terminate the liquidation, she would continue to act in accordance with her obligations as liquidator pursuant to the Act.[12] Mr He was therefore on notice that Ms Burdett-Baker would not be ‘downing tools’ while he continued to contemplate making an application to terminate the winding-up.
[12]First Affidavit [18].
In my view, to take the approach contended for by Mr He places far too much emphasis on the benefit of hindsight. The question is not whether the liquidator could have waited but whether it was reasonable for her to take the steps she took at the time she took them, knowing what she knew at the time.
Applying the principles set out by her Honour in Starpicket, in my view Ms Burdett-Baker was entitled to take the steps she took in relation to selling the Properties.
She did not have to effectively down tools upon being informed by Mr He on 29 November 2016 that he intended to seek a termination of the winding-up. As stated by her Honour in Starpicket, it ‘would have been inappropriate and impermissible’[13] for her to do so.
[13]Starpicket, [42].
Nor did Ms Burdett-Baker have to down tools upon receipt of Mr He’s proposed affidavit on 20 December 2016. While it was the case that the prospect of an application to terminate the winding-up was more likely at that stage, I consider, in line with Starpicket, that the time at which the liquidator was obliged to ‘exercise her professional judgment as to what work was reasonable and necessary prior to the hearing and determination’[14] of Mr He’s application, was upon her becoming aware that the application had been made. In this case, that was on 10 January 2017 when she was served with the Termination Application. It was then reasonable for Ms Burdett-Baker to take advice and consult with the secured creditor before halting the sale process. Consequently, I do not accept Mr He’s submission in respect of this first issue. Ms Burdett-Baker is entitled to her remuneration in connection with the sale of the Properties.
[14]Ibid [43].
In any event, not a great deal turns upon whether the sale should have been halted on 20 December 2016 or after service of the Termination Application. The Camberwell Authority was signed prior to 20 December 2016, and the Ringwood Authority was signed on that date. That was the same date when Ms Burdett-Baker received Mr He’s proposed affidavit. There is no evidence as to whether the proposed affidavit was received before or after Ms Burdett-Baker signed the Ringwood Authority. Therefore, if I did regard 20 December 2016 as the crucial date for halting the sale process, I would not have had sufficient evidence to say that the Ringwood Authority ought not to have been signed on that date. The only substantive work done by the liquidator’s team between 20 December 2016 and 9 January 2017 was in reviewing Mr He’s draft affidavit for the Termination Application and meeting with him to discuss it on 23 December 2016. Due to the closure period for the liquidator’s office, not a great deal occurred after 23 December 2016 and it re-opening on 9 January 2017.
Mr He submitted that the marketing expenses in connection with the sale of the Properties should also be disallowed on the same basis. I do not accept that submission, for the same reasons as set out above.
Mr He accepted that it was reasonable for Ms Burdett-Baker to have obtained the valuations for the Properties, and did not dispute those expenses.
Accordingly, Ms Burdett-Baker is entitled to her remuneration and expenses (including marketing expenses and valuations) associated with the sale of the Properties. The question of whether she is entitled to the commissions of the selling agents is dealt with separately below.
Issue 2: Payment of the commissions of the selling agents
Included in item 4 of the table set out in paragraph 15 above, the externally provided professional services (including GST), are the commissions of the two selling agents. The commissions are $13,500 for the Camberwell Property and $18,563 for the Ringwood Property, both inclusive of GST. The GST exclusive amounts are $12,272.73 for the Camberwell Property and $16,975.45 for the Ringwood Property.
In addition to submitting that the commissions of the selling agents fell into issue 1 above, Mr He asserted that the commissions were not payable such that payment of these expenses should not be allowed.
The relevant terms of the Auction Authorities are as follows:
11.If the Vendor is disposing of the property under the terms of a security and the auction is cancelled:
11.1within 14 days from the date of this Authority, the Vendor will pay the Agent the total Marketing Expenses and one-quarter of the commission payable on
11.1.1the Vendor’s reserve price set out in the Particulars of Appointment or otherwise advised by the Vendor; or
11.1.2the amount owing under the security whichever is the higher sum; or
11.2after 14 days from the date of this Authority and on or before the auction date, the Vendor will pay the total of the Marketing Expenses and 3 times the commission calculated in the manner set out in GC [General Condition] 11.1.
‘Security’ is defined in cl 1.15 of the Auction Authorities to ‘include mortgage, bond, debenture, covenant, charge, or appointment under the terms of which the Vendor is disposing of the Property’.
Counsel for Ms Burdett-Baker informed the Court that the selling agents had taken the position that the liquidation is an appointment under the terms of which the Vendor is disposing of the Property for the purposes of cl 1.15 and that as a result of the cancellation of the auctions, commissions are payable under cl 11.1 of the Auction Authorities.
Mr He submitted that cl 11.1 of the Auction Authorities was really directed to sales such as those by a mortgagee in possession or a receiver appointed under a security. He contended that ‘appointment’ should be interpreted by what comes before it in clause 1.15 of the Auction Authorities, and the appointment of a liquidator by the Court does not come within the categories of security in that section. He also submitted that even if the liquidation was a voluntary appointment, it would not bear a resemblance to mortgage, bond, debenture, covenant and charge. Further, there are no terms under which a liquidator appointed by the Court is appointed.
Both parties also submitted that here, Aohai was the Vendor within the meaning of the Auction Authorities, not the liquidator, and that therefore clause 11.1 did not apply. However, there is a difficulty with that submission. While the vendor under the Camberwell Authority is listed as Aohai, the vendor under the Ringwood Authority is listed as Ms Burdett-Baker as liquidator of Aohai. Mr He submitted that the Ringwood Authority, despite being styled in this way, was signed by the liquidator as agent for Aohai.
Ms Burdett-Baker’s position in relation to the question of whether the sales commissions were payable could be described as somewhat agnostic. Her counsel recognised the difficulties associated with interpreting clause 11.1 of the Auction Authorities and explained both positions to the Court. The commissions have not yet been paid.
Ms Burdett-Baker’s primary concern was to avoid a situation where she paid the commissions and then the Court later said this was not justified. Alternatively, if she did not pay the commissions and then the agents successfully sued for them, she would be out of pocket if they were not included in the expenses which Mr He is ordered to pay.
It is not a matter for me on this application to determine the correct interpretation of cl 11.1 of the Auction Authorities. I do not have all of the information before me and, importantly, the agents themselves are not represented.
However, I do think that there is considerable doubt as to the correct interpretation of cl 11.1 of the Auction Authorities in the circumstances of this case. In my view, that level of doubt is such that it is not appropriate for me to include the expenses of the commissions in the approved expenses, which also means that I will not order that Mr He pays these expenses.
I also note that counsel for Ms Burdett-Baker informed the Court that both agents had told Ms Burdett-Baker that they would not pursue her for the commissions if the Court orders that the commissions should not be paid. I pointed out that this was not how I would characterise the task in front of me, since this was not an application by a liquidator for directions. Counsel subsequently informed me that Ms Burdett-Baker was content that her position with the agents was such that they would not pursue her if the commissions were not included in this process. I have noted this, however I should indicate that the matters outlined in this paragraph were not determinative of the outcome I have reached in respect of payment of the commissions.
Issue 3:Remuneration and expenses for work done after the liquidation was terminated (ie after 10 February 2017)
Although counsel’s written submissions suggested that all remuneration and expenses for work done after the termination of the liquidation were opposed, at the hearing of this matter counsel for Mr He clarified that Mr He no longer said that there was no entitlement after 10 February 2017, as he had received the supporting information for all claims after that time the day before the hearing. As such, the liquidator’s prima facie case for remuneration and expenses after 10 February 2017 had been made out and the real issue was whether the remuneration and fees after that date were reasonably incurred.
Ms Burdett-Baker’s remuneration and expenses were effectively divided into two groups for the purpose of considering this issue: fees and expenses associated with getting paid (ie fees and expenses for preparing her remuneration claim and in connection with the Remuneration Application); and other fees and expenses. The latter category was not disputed (with the exception of the fees/costs associated with dealing with the agents’ commissions). Counsel for Ms Burdett-Baker estimated that the costs of dealing with all aspects of the Remuneration Application were around $11,000 (excluding GST) in fees and around $30,000 (including GST) in expenses (ie legal fees), including the costs of this hearing. I was not given a figure for the GST-exclusive amount of these expenses, as the amount includes some unbilled legal fees.
Counsel for Ms Burdett-Baker relied on Starpicket, where Gordon J stated that:[15]
The Liquidator is entitled to reasonable remuneration for work performed after the winding up was set aside, to the extent that such work was performed in accordance with his duties and the law. This entitlement encompasses not only the filing of the requisite forms with the Australian Securities and Investments Commission (ASIC), but also those acts required of the Liquidator to transfer control of Starpicket back to its directors. It also includes preparation of the Liquidator’s application for remuneration currently before the Court. As stated by Zeeman J in Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430 at 441:
[T]he applicant is entitled to be remunerated for work necessarily done by him by way of complying with the law subsequent to the termination of his appointment. …
In my view, work properly done by the applicant by way of preparing his claim for remuneration falls to be dealt with as part of his remuneration.
[15]Starpicket, [54]. Counsel stated that this reasoning was followed in ACN 104 635 369 Pty Ltd (in liq) (formerly Total Plant Services Pty Ltd) v Hamilton (2015) FCA 1219 (13 November 2015) [53].
Counsel for Mr He accepted that this approach should be taken.
Part of the Final Updated Claim is a spreadsheet prepared by the liquidator’s office setting out, on a line by line basis, the tasks undertaken by her or her staff, along with the time spent on each task and the cost of that task (‘the Liquidator’s Spreadsheet’). Reviewing the Liquidator’s Spreadsheet, counsel for Mr He stated that nothing ‘jumped out’, on a line by line basis, as being unreasonable but when looked at in total, the time spent on the Remuneration Application came to a large number. He conceded that plainly the remuneration report needed to be prepared and that the work done in mid-February as set out on the Liquidator’s Spreadsheet related to that, and that he didn’t really take issue with the items set out on pages 97 and 100 for 13, 14, 15 and 20 February.
However, Mr He submitted that some of the items appeared to be either duplicative or associated with doing tasks again because they hadn’t been done properly in the first place. These were identified as three items on page 101 of the Liquidator’s Spreadsheet totalling $1,004.[16] Mr He referred to the Code of Professional Practice of the Australian Restructuring Insolvency & Turnaround Association (‘ARITA Code’). The ARITA Code allowed practitioners to claim:
the necessary and proper costs of record keeping and seeking approval or determination of their claim for [r]emuneration.
If additional costs are incurred because of inadequacies of the [p]ractitioner or [f]irm’s time recording systems, or due to staff not properly recording their time, these costs would not be necessary and proper. It is not appropriate to charge this additional cost to the [a]dministration and it should not form part of the claim for [r]emuneration.[17]
[16]These were two items for Ms Williams and one item for Mr Green for 28 February 2017.
[17]ARITA Code (3rd ed, 18 August 2014) s 14.8.
Mr He also submits that the liquidator’s fees for reviewing Ms Burdett-Baker’s draft affidavit and preparing the Remuneration Application are excessive. He submitted that each entry on its own seemed reasonable but when taken as a whole, the fees for these activities added up and raised a question as to whether it was all reasonably necessary. Mr He was particularly critical of the increase in the amount of fees claimed with each updated claim. He says that quite a proportion of the fees claimed in the period after the termination of the liquidation is for considering the issue of the agents’ commission. He submitted that this was not reasonably necessary and that it should have been done at the time the Auction Authorities were signed. Since he was not given copies of the Auction Authorities at an earlier stage, by the time he could assess whether the commissions were payable, the liquidator had already spent a substantial amount in considering this issue.
In summary, Mr He submitted that there was some duplication in the work performed by Ms Burdett-Baker and her team. He said that he did not complain that there was a need to prepare multiple remuneration reports, and he acknowledged that at times he requested information which he had already been given, such that he had caused some of the duplication.
In reply, Ms Burdett-Baker submitted that it was only during the hearing that Mr He conceded that she was able to claim her remuneration and expenses for the period after the termination of the liquidation. She also submitted that while Mr He was entitled to keep asking for more and more information, providing that came at a cost, as she had to prepare multiple sets of remuneration claims and have her solicitor give to Mr He material that had already been provided.
It is clear, on the authorities as set out above, that a liquidator is entitled to fees and expenses for the period after the termination of the winding-up, which includes the fees and expenses of making her remuneration claim.
In the circumstances of this case, including the arguments made by Mr He as to whether the agents’ commissions were payable, I accept that it was reasonable for Ms Burdett-Baker to have incurred fees and expenses in dealing with that issue. She was entitled to investigate the position, seek advice, and negotiate with the agents. All of that comes at a cost. Further, the position which she has now reached with those agents is one that benefits Mr He. I do not consider the amount of fees and expenses incurred in that exercise to be unreasonable.
In my view, in this case there should be some reduction in the amount claimed in fees ($11,000 excluding GST) and expenses (ie legal costs, $30,000 including GST) for the period after the termination of the winding up in respect of dealing with the liquidator’s claim for fees and expenses:
(a) I accept Mr He’s submission that the items he identified for 28 February 2017 should not be allowed, as these were costs involved in a ‘lengthy review of WIP entries’ and ‘updating descriptions and tidying up WIP prior to sending to solicitor.’[18] This results in a reduction of $1,004, leaving a balance of around $10,000 in fees (excluding GST); and
(b) the fees and costs of the Remuneration Application should be reduced, as I accept the submission that the amount of time spent by the liquidator and her staff, and her lawyers, on this aspect are excessive. In saying that, the level of reduction ought be relatively modest, to allow for the fact that some of that excess was due to Mr He’s own conduct. At the time of filing the Remuneration Application, Ms Burdett-Baker relied on what was described as her final claim.[19] The content of that claim is quite detailed, however it does not contain the level of detail that is set out in the Liquidator’s Spreadsheet. Instead, it broke down the liquidator’s fees into 7 categories and then for each category described the tasks performed, the total number of hours and the fees. Ms Burdett-Baker submitted that this was sufficient for the purposes of the Remuneration Application. I do not agree. It does not set out ‘the person performing the work, the grade or level of the relevant person, the task and dates, time spent on the task and the relevant rate according to the level of the person carrying out the task.’[20] The requisite level of information was subsequently provided, however the fees and legal costs should be discounted for the likely duplication and possible wasted costs associated with preparing the Remuneration Application. A reduction of around 10 per cent in the fees and around 5 per cent on the legal costs is reasonable in all the circumstances described in this paragraph.
Issue 4:Whether the claim for expenses should include the GST payable on those expenses
[18]Liquidator’s Spreadsheet, 101, items 2, 3 and 4.
[19]First Affidavit, ‘REB-3’.
[20]Re ACN 004 323 284 Pty Ltd [2002] VSC 353 (29 August 2002) [43] per Dodds-Streeton J.
Mr He accepts that the GST component on Ms Burdett-Baker’s fees is payable by him as part of her remuneration claim. However, he disputes her claim that the GST component on Ms Burdett-Baker’s expenses is payable by him. The Final Updated Claim quantifies the GST on expenses as $10,586.26.
Mr He submits that the GST component of the expenses incurred by Ms Burdett-Baker are not recoverable from him, because she is entitled to an input tax credit on those amounts. Mr He relied on IMO F Basile & Associates Pty Ltd (in liq).[21]
[21][2016] VSC 690 (17 November 2016) (‘Basile’).
In Basile, Hetyey JR held that the GST component of a liquidator’s expenses was not recoverable on the assumption that the liquidator would be entitled to an input tax credit.[22]
[22]Basile, [89]. He relied on Merringtons Pty Ltd v Luxottica Retail Pty Ltd & Anor [2006] VSC 525 (16 June 2016) in support of that general proposition. See also the cases referred to in footnote 32 of Basile.
In response, counsel for Ms Burdett-Baker submitted that in this instance she was not entitled to an input tax credit on the relevant amounts, as: the disbursements are a taxable supply of Aohai; the liquidator is no longer in control of Aohai; and Aohai’s registration for GST for the period of the liquidation has been cancelled. Ms Burdett-Baker submitted that she was required to pay the GST and was unable to recover it by way of input tax credits.
As Mr He pointed out, Ms Burdett-Baker was the person in a position to explain the GST situation to the Court, and there was no evidence of the matters relied upon by her as to why she was not entitled to an input tax credit.
This issue was raised by counsel for Mr He in his written outline of submissions, which was filed and served on 7 June 2017. Ms Burdett-Baker therefore had prior notice of this issue and could have provided further evidence in support of her claim.
There is insufficient evidence before the Court to satisfy me that the GST component of the expenses claimed by Ms Burdett-Baker should be included in the amount to be paid by Mr He. Therefore, the amount of $10,586.26 will be deducted from the amount claimed.
Issue 5:Whether two specified time entries constituting part of the remuneration claim should be allowed
Mr He disputes two specified time entries in the Liquidator’s Spreadsheet:
(a) The item on 9 December 2016 for Ms Burdett-Baker for 0.5 hours at $297.50 with the narration ‘Day 1 letters review and signing’ (‘Disputed Item 1’); and
(b) The item on 23 December 2016 for Ms Burdett-Baker for 2.10 hours at $1249.50 with the narration ‘Attendance at meeting with director and his counsel. Review of matter and consider strategy going forward’ (‘Disputed Item 2’).
In relation to Disputed Item 1, counsel for Ms Burdett-Baker stated that he was instructed the time entry was accurate and that the letters reviewed by Ms Burdett-Baker that day were to Mr He regarding his report as to affairs and a letter regarding the disclaimer of a vehicle. There was no reference to this in Ms Burdett-Baker’s affidavits. Mr He submitted that while this may be the case, there was no evidence, and it was also possible that a task from another liquidation was recorded on the wrong file. I am not satisfied that there is sufficient evidence and I will not include Disputed Item 1 in the amount to be paid by Mr He.
In relation to Disputed Item 2, Mr He’s evidence is that Ms Burdett-Baker attended the meeting with him and his lawyer on 23 December 2016 for only a very short time, being a matter of a few minutes. He says that it was up to her to make her narration clear, if most of the time claimed by her for that day relates to other tasks in connection with this liquidation. Mr He also objects to this item on the basis that only one person from the liquidator’s office needed to attend the meeting, whereas two people in addition to Ms Burdett-Baker attended. Ms Burdett-Baker submits that the time entry clearly covers more than the meeting and that this was an important meeting in the liquidation which justified the level of attendance from her office, as Mr He’s proposal to terminate the winding up was under discussion and this was the first substantive meeting between the liquidator’s staff and Mr He. I accept that the level of attendance from the liquidator’s office was reasonable for this meeting. I also accept that it is clear that Ms Burdett-Baker included more than attendance at the meeting in her narration. There are no other items on that day or in the days preceding where Ms Burdett-Baker has recorded time she has spent considering Mr He’s proposal to terminate the winding up. In circumstances where he had provided his draft affidavit on 20 December 2016 and there was to be a substantive meeting on 23 December to discuss it, it was reasonable for Ms Burdett-Baker to have spent the time she did spend on 23 December considering those issues and conferring with her staff. There is no evidence to suggest that Ms Burdett-Baker has inappropriately charged her time for that day.
Issue 6:Whether the claimed remuneration and expenses are proportionate to the value of the services provided and whether a discount factor should be applied
Mr He submitted that the remuneration and expenses should be proportionate to the work performed during the course of the liquidation, and that in this case a global claim of $206,000 for fees and expenses for a very short liquidation (which was even shorter given the Christmas closure period) was not proportionate.
The matters relied on by Mr He in respect of this submission are:
(a) Aohai was wound up on the petition of the Commissioner for State Revenue, for unpaid land tax of $12,202.35;
(b) Aohai was in liquidation for less than 12 weeks;
(c) Aohai’s affairs were not complex, as it was not trading at the time the liquidation commenced and there were only a small number of creditors. The only significant assets were the Properties;
(d) no meetings of creditors were called or convened by Ms Burdett-Baker;
(e) Aohai’s assets were not sold by Ms Burdett-Baker; and
(f) while it was necessary for Ms Burdett-Baker to perform work in connection with the Termination Application, she was not required to produce a solvency report and she did not file any material in that application.
Mr He submitted that other than the work involved in the sale of the Properties, the statutory steps Ms Burdett-Baker was required to take, and the Termination Application, there was very little done by the liquidator in the period up to 10 February 2017. He submits that in the First Affidavit, the fees claimed for work done to 22 March 2017 were for around $69,000. He says that the sales campaign accounted for around $24,000 of those fees, and that the Termination Application constituted the bulk of the rest. He described his material for that application as voluminous but said the only work of substance done by Ms Burdett-Baker in that regard was a four-page letter. I do not accept this characterisation of Ms Burdett-Baker’s contribution to the Termination Application: she sets out the work done by her and her staff in this regard in her First Affidavit, and it is clear that a great deal of work was done to consider the Termination Application and then to assist Mr He with it.
Mr He also submitted that at the time Ms Burdett-Baker made her first claim on 20 February 2017 in the amount of $154,000, it included the agents’ sales commissions and he had not been given the Auction Authorities so had no way of assessing whether it was payable. He characterises the options available to him at that time as ‘accept the claim and pay $154,000’ or seek further information. He says that it is unfair for him to have to pay more than $154,000, having been ‘right’ about one of the large items included in the claim.
Mr He conceded that Ms Burdett-Baker’s support was important for the fate of the Termination Application and that her assistance was valuable in him obtaining the order to terminate the winding up. He also concedes that all the work done by Ms Burdett-Baker was necessary, except for the sale process. Even then, he accepts that the level of the expenses associated with the sales process (such as marketing expenses, but not the sales commissions) were reasonable, it is just that he says the sale process should not have been undertaken. Irrespective of his contentions about the sale process, he accepts that Ms Burdett-Baker acted reasonably in obtaining valuations of the Properties. Mr He further concedes that when the Liquidator’s Spreadsheet is analysed, there is nothing that ‘jumps out’ as unreasonable.
Rather, Mr He’s submission was that when all the items were added up, it came to a large number, and that number was disproportionate. Mr He submitted that a discount factor to the fees and the legal costs ought to be applied. When I asked counsel what Mr He said the discount factor should be, he said that it was difficult to say but the entire claim in respect of liquidator’s fees and legal costs should be discounted by around one-third. There was no justification given to me for the level of the discount: rather, the submissions were as described above.
Ms Burdett-Baker submitted that:
(a) the amount of the debt pursuant to which Aohai was wound up is not relevant: the pertinent question is the overall level of the company’s debts (in excess of $3.6 million) and the value of Aohai’s business and property. Aohai was engaged in significant property developments and the Properties were valued at around $5.576 million ‘as is’ and their estimated realisable value was $12 million;[23]
[23]Mr He’s affidavit in support of the Remuneration Application, sworn 23 December 2016, [46].
(b) the rates charged by Ms Burdett-Baker and her team were market rates, and Mr He did not object to these as the applicable rates;
(c) there had been an appropriate level of delegation by Ms Burdett-Baker, which Mr He also accepted;
(d) the criticism referred to in paragraph 79(f) above is misplaced as Ms Burdett-Baker has not sought remuneration for work she was not required to perform;
(e) apart from the issue of progressing the sales of the Properties, Mr He has not pointed to specific tasks and said they were not warranted; and
(f) in addition to the tasks already referred to elsewhere in these reasons, Ms Burdett-Baker reported to creditors and ASIC, reviewed Aohai’s books and records, and dealt with the Properties and other company property such as leased vehicles.
In summary, Ms Burdett-Baker submits that there should be no deduction for tasks reasonably embarked upon which were appropriately delegated and charged at market rates.
The authorities[24] are clear that the Court may award a lesser sum if there is a lack of proportionality.
[24]Thackray at [64]; Conlan as liquidator of Rowena Nominees Pty Ltd (receivers and managers appointed) (in liquidation) v Adams & Ors (2008) 65 ACSR 521 at [47].
In this case, there is nothing substantive which Mr He is able to point to which establishes a lack of proportionality. As Ms Burdett-Baker submitted, the ‘number is large’ is not a proxy for proper analysis. In circumstances where the liquidator’s rates are accepted, where there was an appropriate level of delegation, where to a large extent the tasks carried out were reasonably undertaken and where most of the expenses were reasonably incurred, the material before the Court does not establish that there is a lack of proportionality in this case. In this regard I accept the submissions made by Ms Burdett-Baker, as summarised in paragraphs 84 and 85 above. I do not consider that an overall discount is required. I have already made the adjustments that I think are reasonable and necessary.
Conclusion
Applying the above rulings to the amounts set out in the table in paragraph 15 above, I have arrived at a figure of $162,602.84 for Ms Burdett-Baker’s fees and expenses. The schedule to these Reasons is a table setting out how this amount has been calculated. The figure means that there ought be orders that Ms Burdett-Baker be permitted to draw down from the Trust Fund the amount of $162,602.84 and that the surplus, being $22,397.16, be paid by Ms Burdett-Baker to Mr He.
I will hear the parties on the appropriate form of orders.
SCHEDULE
Item No. Description Amount claimed Adjustments Adjusted Amount Remuneration 1 23 November 2016 to 12 June 2017 $77,606.00 ($297.50)1
($2,000.00)2
$75,308.50 2 13 June 2017 to completion $4,000.00 N/A $4,000.00 3 GST applicable on remuneration $8,160.60 ($229.75) $7,930.85 Total amount of remuneration claimed (incl GST) $89,766.60 ($2,527.25) $87,239.35 Disbursements 4 Externally provided professional services (incl GST) $108,911.94 ($29,248.18)3
($1,363.63)4 Legal fees percentage reduction
$78,300.13 5 Externally provided non-professional services (incl GST) $5,893.59 N/A5 $5,893.59 6 Internal disbursements (excl GST) $1,632.06 N/A $1,632.06 7 GST on internal disbursements $163.21 (163.21) $0 8 Adjustment for dis-allowing GST on disbursements ($10,586.26)
$123.976
($10,462.29) Total amount of disbursements claimed (incl GST) $116,600.80 ($41,237.31) $75,363.49 Total (incl GST) $206,367.40 ($43,764.56) $162,602.84
Notes:
1. See paragraph 76 of the Reasons.
2. See paragraph 67 of the Reasons.
3.See paragraph 54 of the Reasons. The amount here is the GST exclusive amount for the sales commission for the Properties: as the GST is deducted in item 8 of the table, GST-exclusive amounts are required in this item 4 as otherwise the GST would be deducted twice.
4.See paragraph 67 of the Reasons. The legal costs of the Remuneration Application were estimated at $30,000 including GST, hence the GST exclusive amount is $27,272.73. 5 per cent of that amount is $1,363.63, which is the deduction for legal costs.
5.The GST component on $5,893.59 is dis-allowed, but is deducted in item 8 below.
6.The GST component of the $1,363.63 deducted in legal costs, being $123.97 is added back in, otherwise it would have been deducted twice.
0
6
0