Re Dalstonville Pty Ltd (in liq) and Don Leunig Pty Ltd (in liq)
[2021] VSC 668
•18 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 02853
IN THE MATTER of DALSTONVILLE PTY LTD (IN LIQUIDATION) (ACN 009 463 245) and DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683)
| SAM KASO in his capacity as joint and several liquidator of DALSTONVILLE PTY LTD (IN LIQUIDATION) (ACN 009 463 245) and DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683) | First Plaintiff |
| CLIFF ROCKE in his capacity as joint and several liquidator of DALSTONVILLE PTY LTD (IN LIQUIDATION) (ACN 009 463 245) and DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683) | Second Plaintiff |
| v | |
| DALSTONVILLE PTY LTD (IN LIQUDATION) (ACN 009 463 245) | First Defendant |
| DON LEUNIG PTY LTD (IN LIQUIDATION) (ACN 008 722 683) | Second Defendant |
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JUDICIAL REGISTRAR: | Caporale JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 18 October 2021 |
CASE MAY BE CITED AS: | Re Dalstonville Pty Ltd (in liq) and Don Leunig Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATIONS: | [2021] VSC 668 |
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CORPORATIONS – External administration – Application for determination of external administrator’s remuneration – Section 60‑10(1)(c) of the Insolvency Practice Schedule (Corporations) (‘IPS’) – Section 60-12 of the IPS – Matters to which the Court must have regard to determine if remuneration is reasonable.
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| ON THE PAPERS | Solicitors |
| For the Plaintiffs | Frenkel Partners |
| For the Defendants |
JUDICIAL REGISTRAR:
Introduction
From 14 November 2017 until 19 December 2017, the plaintiffs were the joint and several administrators of the first defendant, Dalstonville Pty Ltd (In Liquidation) (‘Dalstonville’), and the second defendant, Don Leunig Pty Ltd (In Liquidation) (‘Leunig’) (collectively, ‘the companies’).
For their work performed as administrators, the plaintiffs claim remuneration of $70,397 (excluding GST) in relation to Dalstonville and $66,987 (excluding GST) in relation to Don Leunig. The plaintiffs now make an application to the Court for a determination of those claims under s 60‑10(1)(c) of the Insolvency Practice Schedule (Corporations) (being Schedule 2 of the Corporations Act 2001 (Cth)) (‘the IPS’).
In support of their application, the plaintiffs rely on two affidavits affirmed by the first plaintiff on 5 July 2021 and 6 August 2021. The plaintiffs also rely on an affidavit of service sworn by Ricki-Anne Tayla Leathem sworn on 5 August 2021.
The application may be heard in the absence of the public (or ‘on the papers’) if a number of pre-conditions set out in r 9.2 of the Supreme Court (Corporations) Rules2013 (Vic) (‘the Rules’) are satisfied. On the evidence before me, they have been satisfied and, accordingly, the application has been determined on the papers.[1]
[1]One of the persons required to be served under r 9.2(2) of the Rules was served by post to his last known place of residence. This method of service is effective under r 9.07(1) and (2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
For the reasons that follow, the remuneration sought by the plaintiffs is determined and approved in the sums as claimed.
Matters to which the Court must have regard
In making a determination as sought by the plaintiffs, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the matters set out in s 60-12 of the IPS.
The principles which guide applications for the determination of the remuneration incurred by insolvency practitioners are well established and have been referred to in many decisions of this Court. These principles were developed when previous statutory provisions applied but the matters set out in s 60-12 of the IPS are materially the same as in the previous provisions. Therefore, the earlier authorities remain apposite.
Matthews AsJ recently summarised the relevant principles in Re WITS Holdings Pty Ltd (in liq)[2] at paragraphs 44 to 47.
[2][2021] VSC 179.
I adopt her Honour’s summary, which is as follows:
For convenience I adopt his Honour’s summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:
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.
Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited. In addition to the matters referred to above, his Honour stated the following propositions:
[T]he Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred.
Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the ‘value’ of a liquidator’s work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors.
His Honour also canvassed a number of authorities regarding the method for calculating the remuneration, such as time costing or remuneration based on a percentage of realisations, concluding that:
Most decisions … have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the costs of the work done and the value of the services provided.
On this point, his Honour concluded by referring to the New South Wales Court of Appeal decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr which he said did not prefer any particular approach over another. Black J then stated:
Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; and, in part, the view taken by the Court.[3]
[3]Ibid [44]–[47] (citations omitted).
Consideration of the administrators’ evidence of work performed
Mr Kaso, the first plaintiff, and Mr Cliff Rocke, the second plaintiff, were appointed as joint and several administrators of the companies on 14 November 2017. Following their appointment, on 19 December 2017, the Federal Court made orders that the administration of the companies be terminated, the companies be wound up in insolvency and Mr Kaso and Mr Rocke be appointed as joint and several liquidators of the companies.
Accordingly, the companies were in administration from 14 November 2017 until 19 December 2017.
The companies had, in partnership, operated a forklift business under the name of Budget Forklifts (‘the business’). The business operated from leased premises in Kewdale, Western Australia and sold new and used forklifts and materials handling equipment, as well as offering short or long term leases and providing fleet management solutions.
The business was subject to a Partnership Deed which provided, amongst other things, that each of the companies held a 50% interest in the partnership and the assets of the partnership belong to the partners in that proportion, and that the companies must contribute to all liabilities, expenses and outgoings in the same proportion.
On or around 7 August 2017, the partnership’s business and assets were sold to Adapt‑A‑Lift Group Pty Ltd (‘AAL’) (excluding debtors and some other items).
Sometime prior to August 2016, GE General Commercial Corporation (Australia) Pty Ltd (‘GE’) had provided a floor plan financing facility to the business (‘facility’). GE was acquired by Wells Fargo and Wells Fargo acquired all of GE’s rights and obligations under the facility.
In September 2016, Wells Fargo undertook a review of the facility to the business, concluded that the business had failed to pay all amounts due under the facility and demanded those unpaid amounts from the business. The demands were not met and Wells Fargo commenced wind up proceedings.
The business reached an agreement with Wells Fargo that allowed the sale of the business to AAL to be completed.
On or around 14 August 2017, a deed of settlement was executed between the business and Wells Fargo, which provided for a release for the business from liabilities and obligations under the facility and to discontinue the wind up proceedings in exchange for a payment to Wells Fargo of $1.3 million.
AAL advanced the settlement sum to the business and, when the sale agreement occurred between the business and AAL, that advanced sum was treated as payment from AAL towards the purchase price.
On 1 December 2017, receivers and managers were appointed to the companies pursuant to the terms of a registered General Security Agreement in favour of AAL.
The plaintiffs, as administrators (and subsequently as liquidators), were in dispute with AAL regarding the balance of the purchase price payable by the companies and the validity of the appointment of the receivers and managers. That dispute was resolved in May 2019 wherein AAL paid $342,000 to the plaintiffs as liquidators. Mr Kaso and Mr Rocke then remitted the outstanding superannuation guarantee entitlement in the sum of approximately $316,000 to the Australian Taxation Office (‘ATO’) on behalf of the receivers and managers, who subsequently retired on 3 June 2019.
The business has current cash at bank of approximately $649,000. Those funds are derived from net proceeds of pre-appointment debtors, the settlement with AAL, net proceeds from the sale of plant and equipment and legal settlements with Wells Fargo, a former director of the companies and a law firm.
Leunig has current cash at bank of approximately $18,000. These funds are derived from the settlement of an uncommercial transaction claim and the sale of vehicles.
Dalstonville has current cash at bank of approximately $24,000. These funds are derived from the sale of property jointly owned by Dalstonville (as trustee) and another company.
The business has priority creditors (FEG) in the sum of approximately $32,000. Dalstonville, Leunig and the business have unsecured creditors in the sums of, respectively and approximately, $537,000, $205,000 and $6 million.
The first meeting of the companies’ creditors was held on 24 November 2017. Prior to the meeting, the creditors were provided with information which included an estimation of the remuneration for undertaking the administration of the companies in the sum of $150,000 to $200,000 (plus GST) (and subject to identified variables).
The plaintiffs, as liquidators, did not, prior to being appointed as liquidators of the companies, seek to obtain approval of their remuneration from creditors or from the Court in respect of the administration period.
The plaintiffs have prepared a Remuneration Approval Report dated 12 December 2017 (‘Report’) which outlines the work undertaken during the administration period. The plaintiffs seek approval of their total costs and expenses incurred in the care, preservation and realisation of assets of the business.
The Report includes a table of tasks and the total cost of the tasks (or approximate costs for work to be performed) for each of the companies (‘the work tables’). The work tables set out task areas — investigation, administration, assets, creditors, employees, and dividends. Against each task area, there is a narrative as to what the tasks involve, the time spent (or to be spent) and the amount claimed.
The work tables are for the periods 14 November 2017 to 7 December 2017,[4] for work completed, and 8 December 2017 to the end of the administration. Accordingly, they cover the period for which the plaintiffs seek determination of their remuneration.
[4]I note that in the Remuneration Approval Report, there was a typographical error in the work tables, which stated that the end date for the first part of the administration period was 7 December 2018 instead of 7 December 2017.
For each of the companies, the work tables reveal that the task areas for which the most work was done, and the most costs incurred, were in the task areas of ‘Assets’ and ‘Creditors’.
For the ‘Assets’ task area, the work included investigations into the assets not subject to the sale agreement to AAL, investigations into the commerciality of the pre‑appointment sale of business transaction, site visits to gain an understanding of the operations of the business, identifying valuation of assets, determination of insurance needs and reviewing the companies’ debtor ledgers.
For the ‘Creditors’ task area, the work included preparing correspondence to creditors, assessing claims and reviewing supporting documentation and underlying agreements, preparation of a report to creditors, recording proof of debts lodged and holding the first meeting of creditors.
A detailed summary of the work undertaken for each of the companies (‘WIP summaries’) has also been provided. The WIP summaries:
(a) set out the details of the person that performed the work, the dates they performed the work and each task performed, including a detailed description of the task, the time spent on that task and the cost (calculated by reference to the hourly rate of the relevant staff member) of the task; and
(b) record that the work performed during the administration period included conducting investigations into the assets not subject to the sale agreement with AAL, performing site visits to gain an understanding of the business, meeting with directors, discussions with solicitors, reconciling the companies’ debtor position, completing asset reconciliation to determine assets subject to the sale agreement, determining an appropriate realisation strategy for the assets not subject to the sale agreement, pursuing all monies payable to the companies under the sale agreement and reviewing bank statements, transactions and management accounting records.
Mr Kaso deposes that he has reviewed the WIP summaries and believes that all of the work listed was both necessary and of an appropriate quality, that there are no entries that he considers to be unnecessary or excessive and that there was an appropriate level of delegation of the necessary work.
The total of the fees incurred during the administration period in preserving the business assets is $70,397 (excluding GST) for Dalstonville and $66,987 (excluding GST) for Leunig.
Mr Kaso also deposes that the liquidators have also incurred costs and expenses pertaining to the general winding up of the companies during the administration period. However, the plaintiffs are not seeking determination and approval of these costs and expenses in this application. This explains why the costs as set out in the work tables exceed the remuneration now sought for determination.
The evidence demonstrates that most of the work performed was in the task areas of assets and creditors, followed by investigation, and that those tasks were delegated to a person of an appropriate level. The fees charged by each person, as set out in each of the entries in the WIP summaries, are appropriate and appear to be within the ‘market’ for liquidators and their staff.
There are approximately 400 entries in the WIP summaries. The narrative for each entry is quite detailed and informative. I did not examine each entry but instead chose 10 or so entries on each page for examination. That examination was undertaken so as to ascertain if the task was performed by a person at an appropriate level (having regard to the task performed), whether the time taken to perform the task was reasonable and whether the task performed was necessary in the conduct of the administration. I am satisfied of all those matters. Importantly, the WIP summaries demonstrate that a lot of the important and more complex work was appropriately undertaken at the senior manager level.
In my view, the evidence, and in particular the Report (which includes the work tables) and the WIP summaries, complies with the requirement of r 9.2(6) of the Rules and the standard required by the Supreme Court of Western Australia in Venetian Nominees Pty Ltd v Conlan,[5] and establishes that the remuneration sought is prima facie fair and reasonable.
[5](1998) 20 WAR 96.
Application of the criteria in s 60-12 of the IPS
I now consider the matters mentioned in s 60‑12 of the IPS which the Court is required to take into account in exercising the power to determine the administrators’ remuneration.
As set out above, the plaintiffs, by the evidence relied upon by them, have made out a prima facie case that their claim for remuneration is fair and reasonable. That evidence also addresses the matters set out in s 60‑12(a) to (d) which ‘collectively amount to an assessment as to whether the claim made is fair and reasonable’.[6] At first glance the remuneration sought by the plaintiffs for a period of little over a month may seem on the high side. However, a consideration of the evidence, in particular the work tables and the WIP summaries, demonstrates that the work undertaken was necessary and properly performed.
[6]Re AsiaPAC Communications Group Pty Ltd (in liq) (recs & mgrs apptd) [2015] VSC 413, [81].
The matters set out in s 60‑12(e) to (g) relate to complexity of work, extraordinary issues and accepting a higher level of risk or responsibility than is usually the case. I do not think any of these matters require any particular attention in this application, and Mr Kaso did not say anything specifically about them in his affidavits. Having said that, I do note that there would have been some complexity in determining what assets were subject to the sale agreement with AAL and other complexities that were brought about by the sale agreement as set out at pages 20 and 21 of the Administrators’ Report to Creditors dated 12 December 2017 — for example, liaising with AAL regarding a final Wash Up Calculation and on-going negotiations with AAL, including pursuing the recovery of Pre-Completion Debtors collected by AAL. Section 60-12(h) and (i) relate to property and creditors. I again note the identification of assets and also note that there were a large number of creditors, particularly unsecured creditors.
The plaintiffs seek determination of their remuneration as administrators on a time basis according to the Cor Cordis Chartered Accountants’ scale of hourly rates. This is a matter that the Court must have regard to as set out in s 60-12(j). As indicated to creditors, this method was considered appropriate because the alternative remuneration methods were considered inequitable for the administration and the realisable values of the assets were indeterminate at the commencement of the administration. The estimates of the fees for the remuneration of the administrators as provided to the creditors were relatively accurate. As set out above in these reasons, the administrators have provided a detailed account of the time spent on the tasks and work performed by them and their staff. The time spent on those tasks appears to be proportionate, necessary and reasonable.
The matters set out in s 60-12(k) and (l) are not relevant here.
Considering all of the relevant matters set out in s 60-12 of the IPS, I have determined that the remuneration sought by the plaintiffs is reasonable and should be approved with no reduction.
I will make the following orders pursuant to s 60-10(1)(c) of the IPS:
(a)the plaintiffs’ remuneration, in their capacity as the former administrators of Dalstonville, is determined and approved in the sum of $70,397.00 (excluding GST);
(b)the plaintiffs’ remuneration, in their capacity as the former administrators of Leunig, is determined and approved in the sum of $66,987.00 (excluding GST); and
(c)the plaintiffs’ costs of the application for the determination of their remuneration as administrators are costs in the liquidation of Dalstonville and Leunig.
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