Re Earning Pty Ltd (in liquidation)
[2019] VSC 152
•15 March 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 02102
IN THE MATTER of EARNING PTY LTD (IN LIQUIDATION) (ACN 118 746 599) AND THE OTHER COMPANIES AND TRUSTS LISTED IN THE SCHEDULE TO THE ORIGINATING PROCESS
| ADAMS PAULS NIKITINS AS LIQUIDATOR OF EARNING PTY LTD (IN LIQUIDATION) (ACN 118 746 599) AND THE OTHER COMPANIES AND TRUSTS LISTED IN THE SCHEDULE TO THE ORIGINATING PROCESS, AND OTHERS AS LISTED IN THE SCHEDULE | Plaintiffs |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 November 2018 |
DATE OF JUDGMENT: | 15 March 2019 |
CASE MAY BE CITED AS: | Re Earning Pty Ltd (in liquidation) & Ors |
MEDIUM NEUTRAL CITATION: | [2019] VSC 152 |
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CORPORATIONS – External administration – Application by liquidator of companies for determination of remuneration pursuant to s 473(3)(b)(ii) of the Corporations Act 2001 (Cth) – Application by liquidator of unregistered managed investment schemes for determination of remuneration under s 601EE(2) of the Corporations Act 2001 (Cth) – Directions under s 90-15 of Schedule 2 (Insolvency Practice Schedule) to the Corporations Act 2001 (Cth) – Remuneration approved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr O Bigos | Ashurst Australia |
JUDICIAL REGISTRAR MATTHEWS:
Introduction
Nature of the application and material relied upon
The First Plaintiff, Adams Pauls Nikitins, (‘Liquidator’) is the Court-appointed liquidator of the Second to Sixth Plaintiffs (‘Earning Companies’) and of the following unregistered managed investment schemes:
(a) a scheme conducted by Salarypackaging.com.au Pty Ltd (‘Salarypackaging’), the Second Plaintiff (‘Earning’), the Sixth Plaintiff (‘ACN4’) and Ian Bristow, comprising the Eatons Hill Project No. 2 Unit Trust, Earning and ACN4 and its assets (‘Eatons 2 Scheme’);
(b) a scheme conducted by Earning, the Third Plaintiff (‘ACN1’) and Ian Bristow, comprising the MMFS CIT - Moreton Unit Trust, Earning and ACN1 and its assets (‘MMFS CIT Moreton Scheme’);
(c) a scheme conducted by Earning, the Fourth Plaintiff (‘ACN2’) and Ian Bristow, comprising the Moreton Reach Unit Trust, Earning and ACN2 and its assets (‘Moreton Reach Scheme’);
(d) a scheme conducted by Earning, the Fifth Plaintiff (‘ACN3’) and Ian Bristow, comprising the MMFS CIT - Queensland Unit Trust, Earning and ACN3 and its assets (‘MMFS CIT Queensland Scheme’); and
(e) a scheme conducted by Earning and Ian Bristow, comprising the MMFS CIT - Kebbel Unit Trust and Earning (‘MMFS CIT Kebbel Scheme’),
(together, the ‘Earning Schemes’).
By originating process filed on 2 November 2018, the Liquidator sought orders and directions in relation to:
(a) two deeds of settlement and release entered into by the Liquidator and the Second to Fifth Plaintiffs (‘Relevant Companies’) and the appropriate distribution of the settlement sum amongst the investors of the MMFS CIT Queensland Scheme, the MMFS CIT Moreton Scheme, and the Moreton Reach Schemes (‘Settlement Orders and Directions’); and
(b) the remuneration of the First Plaintiff as liquidator of the Earning Companies and the Earning Schemes (‘Remuneration Orders and Directions’).
The Liquidator relies on his affidavits affirmed:
(a) 2 November 2018 (‘First Nikitins Affidavit’); and
(b) 19 November 2018 (‘Second Nikitins Affidavit’).
The Liquidator also relies on the comprehensive written submissions prepared by his counsel, Dr Bigos and Ms Bell (‘Submissions’).
On 19 November 2018, Associate Justice Efthim made most of the Settlement Orders and Directions. The balance of the Liquidator’s application was referred to me for hearing and determination.
This decision concerns the application for the Remuneration Orders and Directions (‘Application’). The Liquidator seeks the following orders:
(a) Orders under s 473(3) of the Corporations Act 2001 (Cth) (‘Act’) determining the Liquidator’s remuneration for the liquidation of:
(i) Earning, for the period 27 May 2008 to 31 August 2018 (inclusive), in the sum of $275,012.91 plus $27,501.29 GST;
(ii) ACN1, for the period 9 April 2008 to 31 August 2018 (inclusive), in the sum of $7,285.86 plus $728.58 GST;
(iii) ACN2, for the period 9 April 2008 to 31 August 2018 (inclusive), in the sum of $7,860.84 plus $786.08 GST;
(iv)ACN3, for the period 9 April 2008 to 31 August 2018 (inclusive), in the sum of $7,241.76 plus $724.17 GST; and
(v) ACN4, for the period 9 April 2008 to 31 August 2018 (inclusive), in the sum of $9,417.19 plus $941.71 GST
(together, ‘Earning Companies Past Remuneration Orders’).
(b) Orders under s 601EE(2) of the Act determining the Liquidator’s remuneration for the liquidation of:
(i) The MMFS CIT Queensland Scheme, for the period 27 March 2008 to 31 August 2018 (inclusive), in the sum of $25,258.15 plus $2,525.81 GST;
(ii) The MMFS CIT Moreton Scheme, for the period 27 March 2008 to 31 August 2018 (inclusive), in the sum of $24,376.81 plus $2,437.68 GST;
(iii) The Moreton Reach Scheme, for the period 27 March 2008 to 31 August 2018 (inclusive), in the sum of $32,181.04 plus $3,218.10 GST; and
(iv)The Eatons 2 Scheme, for the period 18 October 2010 to 31 August 2018 (inclusive), in the sum of $7,177.65 plus $717.76 GST
(together, ‘Earning Schemes Past Remuneration Orders’).
(c) Orders under s 473(3) and/or s 601EE(2) of the Act determining the Liquidator’s remuneration for the liquidation of the Earning Companies and the Earning Schemes, for the period of 1 September 2018 to the finalisation of the liquidations in the sum of $129,000 plus $12,900 GST (‘Future Remuneration Orders’).
The Liquidator also seeks the following directions:
A direction under s 90-15 of Schedule 2 (Insolvency Practice Schedule) to the Act (‘Practice Schedule’) and/or s 601EE(2) of the Act and/or r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) that the Liquidator is justified in claiming a right of indemnity secured by a first-ranking lien over the net settlement proceeds under the deeds of settlement and release[1] in respect of his entitlements to remuneration and reimbursement for disbursements plus the costs of this application and paying those entitlements to remuneration and reimbursement for disbursements out of the net settlement proceeds (‘Indemnity Direction’).
[1]Exhibits APN-18 and APN-19 to the First Nikitins Affidavit.
For the reasons set out below, I will approve the Application and make orders and directions as sought.
Notification of investors and other potentially interested persons
The Liquidator deposes that on 27 September 2018, he circulated a ‘Report to Investors: Earnings Group of Managed Investment Schemes’ (‘Report to Investors’).[2] That report set out, inter alia:[3]
[2]First Nikitins Affidavit, [63]; Exhibit APN-22 to the First Nikitins Affidavit.
[3]First Nikitins Affidavit, [64].
(a) A summary of the Liquidator’s retrospective remuneration to date;
(b) A summary of the Liquidator’s prospective remuneration likely to be incurred in the finalisation of the liquidations;
(c) A summary of the legal fees incurred by the Liquidator’s solicitors, Ashurst, and an estimate in respect of future legal costs for implementing the settlement deeds and assisting (if necessary) in the finalisation of the liquidations of the Earning Companies and Earning Schemes;
(d) Notice of the Court approval process, including the process for dealing with or objecting to the Application; and
(e) A call for details of investors’ investments which provided investors with an opportunity to confirm their contact and investment details (‘Investment Claim Form’).
The Liquidator also deposes of the steps that were taken in an attempt to notify investors who have otherwise proven to be uncontactable or non-responsive in respect of his communications, which included publication of an advertisement in The Australian newspaper on 15 October 2018 and the Victorian Government Gazette on 18 October 2018, searches of public databases such as the White Pages and tribute notices, and contact to some financial planners who had advised a number of investors.[4]
[4]First Nikitins Affidavit, [66].
On 8 November 2018, the Liquidator also sent letters to the investors notifying them of the date and time of the hearing of this proceeding (which was the first hearing before Efthim AsJ on 19 November 2018). Investors were informed that they could attend the hearing, or raise any concerns with the Liquidator or his staff prior to the hearing, and the Liquidator offered to provide copies of the originating process and the First Nikitins Affidavit to those who requested them (‘Notification Letters’).[5]
[5]Second Nikitins Affidavit, [3].
The Notification Letters were sent by post to 75 of the 82 investors (the Liquidator had identified 82 unique individuals or entities who had invested in the Earning Schemes).[6] The Liquidator did not receive any indication that these were not delivered or not received. The Liquidator did not have current postal addresses for the other 7 investors. The Notification Letters were also sent to 60 investors for whom the Liquidator had email addresses. Of these, the Liquidator’s staff received ‘bounce backs’ from three of the email addresses.[7]
[6]First Nikitins Affidavit, [11].
[7]Second Nikitins Affidavit, [4].
The Liquidator deposes to the responses received from investors in relation to the Report to Investors or the Notification Letters:[8]
(a) 64 of the 82 investors returned Investment Claim Forms, which confirms that at least that number received the Report to Investors;
(b) Approximately 25 telephone calls and emails from investors, none of which raised any concerns or objections to the orders and directions sought.
[8]Second Nikitins Affidavit, [5]-[6].
On 8 November 2018, the Liquidator’s solicitors sent a letter to ASIC advising of this proceeding which enclosed copies of the originating process and the First Nikitins Affidavit.[9] As at 19 November 2018, no response from ASIC had been received.[10]
[9]Second Nikitins Affidavit, [7].
[10]Second Nikitins Affidavit, [8].
The Liquidator is a partner of EY and has been a registered liquidator since 2008.[11]
[11]First Nikitins Affidavit, [1]-[2].
On 27 March 2008 on the application of ASIC, the Federal Court of Australia made orders winding up Earning and the Earning Schemes, and John Georgakis, at that time a partner of EY, was appointed liquidator.[12] Further orders were made and declaratory relief granted by the Federal Court on 9 April 2008, including declarations identifying some of the assets of some of the Earning Schemes. At that time, orders were also made winding up the other Earning Companies and Mr Georgakis was appointed liquidator.[13]
[12]First Nikitins Affidavit, [6].
[13]First Nikitins Affidavit, [8].
Upon the resignation of Mr Georgakis as liquidator of the Earning Companies and Earning Schemes, Mr Nikitins was appointed liquidator of each of them by orders made by the Federal Court on 9 March 2010.[14] The application for the Past Remuneration Orders concerns remuneration for the period when Mr Georgakis was liquidator and for the period when Mr Nikitins was liquidator. In my view, this is appropriate in the circumstances of this case.
[14]First Nikitins Affidavit, [9].
The Earning group comprised a number of companies and a number of unregistered managed investment schemes, which was a complex set of arrangements for the Liquidator to consider and administer. Investors paid money into a pooled fund and were then issued interests in a particular unit trust which offered them the return of their capital investment plus an additional amount of capital gain (‘Investors’).[15]
[15]First Nikitins Affidavit, [10].
As part of his investigations, the Liquidator identified that three loans were the only assets of the Earning group and that these were the only potential avenue for recovery for the Investors (‘Loans’).[16] It is the Investors who will benefit from any recovery in the liquidation of the Earning group, as there are no known creditors of the Earning Companies or the Earning Schemes.[17]
[16]First Nikitins Affidavit, [28].
[17]First Nikitins Affidavit, [29]-[30].
Since 2001, the Liquidator has participated in complex multi-party litigation in the Supreme Court of Queensland (‘Qld Proceeding’).[18] There were 14 parties to the Qld Proceeding, including the Relevant Companies, who were defendants in that proceeding. It concerned a complex dispute regarding a share sale agreement and the entitlements, if any, to amounts owing under that agreement. The Supreme Court of Queensland made declarations in July 2017 as to the amount owing under that share sale agreement and the party responsible for paying it provided a bank guarantee for it to the Court. Several parties made claims on that fund, including the Relevant Companies, by filing counterclaims in the Qld Proceeding.[19] The claims of the Relevant Companies were in respect of the Loans. It is not necessary for me to set out how those claims came about.
[18]First Nikitins Affidavit, [31].
[19]First Nikitins Affidavit, [32]-[37].
In March 2018, the Supreme Court of Queensland ordered the Relevant Companies to provide security for costs in the amount of $70,000 to the plaintiff in the Qld Proceeding as security for its costs of defending the counterclaim of the Relevant Companies.[20] The Liquidator caused this to be paid into Court on or around 29 March 2018, from EY’s own funds.[21]
[20]First Nikitins Affidavit, [40].
[21]First Nikitins Affidavit, [41].
The competing claims in the Qld Proceeding totalled around $73m whereas the fund available to satisfy the claims was around $20m.[22] These claims were all compromised in the course of two mediations held in around June 2018 and two settlement deeds were subsequently entered into.[23] As noted in paragraph 5 above, this Court has already made orders approving the Liquidator’s entry into those settlement deeds.
[22]First Nikitins Affidavit, [44].
[23]First Nikitins Affidavit, [45]-[58].
With the conclusion of the Qld Proceeding, the Liquidator is in a position, once these applications have been concluded, to finalise the liquidation of the Earning Companies and the Earning Schemes.
Applicable principles
Statutory provisions
Section 473(3) of the Act
This application is made under s 473(3)(b) of the Act. That section provides:
(3)A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a)if there is a committee of inspection – by agreement between the liquidator and the committee of inspection; or
(b)if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i)by resolution of the creditors; or
(ii)if no such resolution is passed – by the Court.
In this case, as there are no known current creditors of the Earning Companies or the Earning Schemes and there is no committee of inspection, the Application has been brought pursuant to s 473(3)(b)(ii) of the Act.[24]
[24]First Nikitins Affidavit, [29], [76].
In exercising the power to determine the Liquidator’s remuneration, s 473(10) of the Act prescribes the matters which the Court must take into account when exercising that power:
(10)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;
(i)any other relevant matters.
While the criteria in s 473(10) of the Act direct the Court to the factors that are to be taken into account, the ultimate question is whether the remuneration claimed by the Liquidator is reasonable.
For completeness, I note that while s 473 of the Act as it was has been repealed and has been replaced by the new provisions contained in division 60 of the Insolvency Practice Schedule (Corporations), which is now Schedule 2 to the Act, it continues to apply in certain circumstances. [25] The Liquidator’s application in this case is properly considered by reference to what was ss 473(3) and (10) of the Act, as Mr Nikitins was appointed as Liquidator of the Earning Companies and Earning Schemes well before 1 September 2017.
[25]For an explanation of the transitional provisions and the continued operation of s 473(3) of the Act, see Re Tuscan Property Development Pty Ltd [2018] VSC 511, [22].
Section 601EE(2) of the Act
Section 601EE(2) of the Act provides that the Court may make any orders it considers appropriate for the winding up of a scheme.
This power can be exercised at any time during the winding up of the scheme.[26]
[26]Burton & Ors v Arcus & Anor [2006] WASCA 71, [92].
Section 90-15 of the Practice Schedule
Section 90-15 of the Practice Schedule relevantly provides as follows:
Court may make orders
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.
Orders on own initiative or on application
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90-20.
Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
….
(d)an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
…
(f)an order in relation remuneration, including an order requiring a person to repay to a company or the creditors of a company, remuneration paid to the person as external administrator of the company.
Matters that may be taken into account
(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a)whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b)whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d)whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e)the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
Costs orders
(5)Without limiting subsection (1), an order mentioned in paragraph 3(d) in relation to the costs of an action may include an order that:
(a)the external administrator or another person is personally liable for some or all of those costs; and
(b)the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.
…
The Court’s approach when considering applications for approval of a liquidator’s remuneration
The principles concerning applications for approval of the remuneration incurred by insolvency practitioners are well established and have been referred to in many decisions of this Court. Gardiner AsJ summarised the relevant principles in IMO Traditional Values Management Limited (in liq)[27] (‘Traditional Values’) at paragraphs [18] to [25].
[27][2012] VSC 650 (14 December 2012).
For convenience I adopt his Honour’s summary,[28] which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[29]
[28]Ibid [20].
[29](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.[30]
[30]Traditional Values, [20], citing Thackray (2011) 85 ACSR 144, [60], [63]–[64] (citations omitted).
Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited.[31]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[32].
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.[33]
[31][2017] NSWSC 668 (‘Sakr’).
[32]Sakr, [23].
[33]Sakr, [23].
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:[34]
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.
[34]Sakr, [24].
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[35] 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.[36]
[35][2017] NSWCA 38.
[36]Sakr, [25].
The Liquidator’s evidence
Past Remuneration
Description of the work performed
The work undertaken in relation to the Earning group falls within five categories, being Asset Recoveries, Investors, Investigations, Dividends and Administration (‘Work Categories’). The Liquidator summarises each of these as follows:[37]
[37]First Nikitins Affidavit, [85], [87].
(a) Asset Recoveries – reviewing the records of the Earning Companies and Earning Schemes and other available information to identify any recoverable assets; liaising with valuers, agents and quantity surveyors and reviewing their reports; obtaining legal advice; reviewing documentation of loans, assignments, bills of sale and other information;
(b) Investors – notifying the Investors of the liquidator’s appointment; corresponding and communicating with Investors regarding the administration of their investments; maintaining Investor positions and enquiry registers; obtaining legal advice in relation to the rights and claims of investors; corresponding with and dealing with enquiries and claims from Investors; dealing with proofs of debt by way of receipting and filing investment claims when not related to a dividend; preparing Investor reports and circulars to Investors;
(c) Investigation – this category mainly concerns the Qld Proceeding, and comprises: assessing, considering and determining the major claims against parties involved in the provision of the Loans; participating in internal meetings to discuss the status of litigation and preparing briefs to solicitors; discussions, consideration of advice and providing instructions to legal advisors regarding the Qld Proceeding, the mediation and the proposed settlement; attending the mediation and conferring with solicitors regarding the settlement deeds;
(d) Dividends – preparing correspondence to Investors regarding future dividends; assessing dividend methodologies and seeking legal advice; calculating returns; and
(e) Administration – attendances incidental to the appointment of the liquidator; general file maintenance; lodging of ASIC notices; necessary dealings with the Australian Taxation Office; detailed time cost recording of the Liquidator’s staff working on the liquidation; work relating to insurance, such as identifying potential issues requiring attention of insurance specialists, correspondence with insurer regarding initial and ongoing requirements, reviewing insurance policies and communicating with brokers.
The Liquidator deposes that the work described in the preceding paragraph was reasonably and appropriately performed by him and his staff, and was appropriately delegated between staff, and that Investors were at all times appropriately informed.[38]
[38]First Nikitins Affidavit, [88].
Liquidator’s calculation of Past Remuneration
In support of his application for the Past Remuneration Orders, the Liquidator’s staff prepared a remuneration request approval report (‘Remuneration Report’).[39] The Remuneration Report includes a schedule of remuneration incurred (‘Past Remuneration Schedule’) and it sets out the following information in relation to each of the Earning Companies and Earning Schemes:[40]
[39]First Nikitins Affidavit, [78]; exhibit APN-22, Appendix B. The Remuneration Report was an appendix to the Report to Investors.
[40]First Nikitins Affidavit, [78].
(a) the name and role of the relevant EY staff member;
(b) the hourly rate applicable to the relevant EY staff member (exclusive of GST);
(c) total hours spent by each EY staff member in relation to each of the Work Categories; and
(d) the amount of remuneration sought in respect of each EY staff member.
The Remuneration Report also includes tables setting out the major tasks undertaken or to be undertaken in respect of each of the Work Categories for each of the Earning Companies and Earning Schemes (‘Table of Major Tasks Undertaken’).[41] This sets out the hours spent on each task, the amount of remuneration sought in respect of each task, and a description of the work carried out.
[41]First Nikitins Affidavit, [86].
The Liquidator deposes that he and his staff have recorded their time for work performed on the liquidations of the Earning Companies and the Earning Schemes based on the actual time spent on the tasks involved.[42] The hourly rates used to calculate the Past Remuneration were the rates that formed part of the ‘consent to act’ prepared by Mr Georgakis when he was appointed liquidator.[43]
[42]First Nikitins Affidavit, [81].
[43]First Nikitins Affidavit, [82]; exhibit APN-24 contains a schedule of these hourly rates.
The Liquidator deposes that a time-cost-basis of calculating remuneration, rather than other methods, is appropriate for the following reasons:[44]
[44]First Nikitins Affidavit, [83].
(a) time based charging ensures that remuneration is sought only in respect of the actual work performed;
(b) the liquidation has involved participating in and defending complex legal proceedings in respect of which it is difficult to assess in advance the work which will be required to effectively participate in, manage and finalise the Qld Proceeding;
(c) time based charging results in remuneration that accurately reflects the actual time spent on the matter at an hourly rate applicable to employee experience; and
(d) it allowed time to be effectively and accurately allocated between tasks relevant to each of the Earning Companies and Earning Schemes.
The Liquidator also states that he has reviewed the Past Remuneration Schedule and believes that the tasks were performed by persons at the appropriate level of seniority, such that more complex tasks were performed by more senior employees and simper tasks were performed by more junior employees.[45]
[45]First Nikitins Affidavit, [84].
Future Remuneration
Liquidator’s estimate of Future Remuneration
The Liquidator seeks approval for Future Remuneration in the amount of $129,000 plus $12,900 GST, for the period from 1 September 2018 to finalisation of the liquidations (excepting that of the MMFS CIT Kebbel Scheme). He proposes to allocate the fixed future remuneration amount as outlined in the table below (the content of which was contained in the Report to Investors), which is based on the proportion of work he expects will be required to bring each of the liquidations to finalisation using the Work Categories (except for the Investigations category):
Company/Scheme Amount (excluding GST) MMFS CIT Queensland Scheme $20,000 MMFS CIT Moreton Scheme $20,000 Moreton Reach Scheme $20,000 Eatons 2 Scheme $20,000 Earning $35,000 ACN 1 $3,500 ACN 2 $3,500 ACN 3 $3,500 ACN 4 $3,500 Total $129,000
The Liquidator states that he calculated the Future Remuneration using EY’s current market hourly rates for 2018. The Report to Investors included a table comparing the 2018 rates with the 2008 rates.[46] He states that in his opinion EY’s 2018 rates are reasonable and in line with market rates of insolvency firms of a similar size and capability of EY.[47]
[46]First Nikitins Affidavit, [90].
[47]First Nikitins Affidavit, [91].
The Liquidator’s staff prepared a schedule describing the work he anticipates will need to be undertaken within each of the relevant Work Categories for each of the Earning Companies and Earning Schemes (‘Future Task Schedule’).[48] The Future Task Schedule formed part of the Report to Investors.[49] In summary, that work comprises:[50]
[48]First Nikitins Affidavit, [93].
[49]First Nikitins Affidavit, [93]; Exhibit APN-22.
[50]First Nikitins Affidavit, [94].
(a) Asset Recoveries – settlement of the Qld Proceeding and the Court approval process;
(b) Investors – engaging with Investors regarding the Report to Investors, Court approval process and settlement of the Qld Proceeding;
(c) Dividends – preparing a report to Investors and an advertisement; processing the investment claims made by Investors; maintaining an Investor register; taking steps to ascertain details for the uncontactable Investors; and attending to the distribution of dividends; and
(d) Administration – file reviews and general administrative tasks up to the finalisation of the liquidations, including bank account administration and reconciliations; notification to the ATO of the finalisation of the liquidations; carrying out the necessary cancellations of ABN, GST and PAYG registrations; lodging relevant documentation with ASIC.
Consideration
Liquidator’s prima facie case for approval
Based on all of the evidence provided, I am satisfied that the Liquidator has made out a prima facie case for payment of his remuneration and expenses, within the meaning referred to in paragraph 34 above. That is, the Liquidator has made out a prima facie case that the remuneration claimed is fair and reasonable, and there is sufficient information to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken.
The Liquidator has calculated his past remuneration by applying the rates applicable as at 2008. This is clearly a reasonable approach and one that is in the interests of creditors, as undoubtedly those rates would otherwise have increased over time. In any event, from my experience in matters associated with insolvency administrations, I know the hourly rates specified by the Liquidator for him and his staff for the past remuneration to be commensurate with the hourly rates typically charged by insolvency practitioners, as are the 2018 rates he has used for the future remuneration.
Although no objection has been taken to the remuneration claimed by the Liquidator, the Court is still required to review the claimed remuneration, taking the matters identified in s 473(10) of the Act into account.
Amount of remuneration to be approved
The Liquidator seeks approval for Past Remuneration in the amount of $395,812.21 plus GST.[51] The Liquidator also seeks approval for Future Remuneration in the amount of $129,000 plus GST.[52]
[51]See paragraph 6 above.
[52]See paragraph 45 above.
In respect of each of the factors identified in s 473(10) of the Act, the Liquidator submits, and I am satisfied, that:
(a) The work performed by the Liquidator was reasonably necessary: s 473(10)(a) of the Act
Each of the tasks undertaken by the Liquidator and his staff was reasonably necessary to comply with the Liquidator’s statutory obligations and duties.
(b) The work likely to be performed by the Liquidator is likely to be reasonably necessary: s 473(10)(b) of the Act
The work required to be performed is necessary as it involves giving effect to the settlement deeds, preparing a final report to Investors, and attending to the distribution of dividends as well as the general administration required to finalise the liquidations.
(c) The period for which remuneration is claimed: s 473(10)(c) of the Act
The remuneration relates to work conducted over 10 years. The Liquidator’s predecessor was appointed to Earning and the Earning Schemes on 27 March 2008 and to the other Earning Companies on 9 April 2008. The liquidations remain unfinalised.
(d) The quality of the work performed, or likely to be performed, by the Liquidator: s 473(10)(d) of the Act
All work was carried out to the standard of a reasonable, competent liquidator. There is no evidence to suggest that the quality of work performed by the Liquidator, his staff and his predecessor did not meet requisite standards.
(e) The complexity (or otherwise) of the work performed, or likely to be performed, by the Liquidator, and the extent (if any) to which the Liquidator was, or is likely to be, required to deal with extraordinary issues: ss 473(10)(e) and (f) of the Act
The affairs of the Earning Companies and Earning Schemes were complex, intertwined, and involved complex litigation.
(f) The extent 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: s 473(10)(g) of the Act
The Liquidator has incurred over $390,000 of unpaid fees for work undertaken over a 10 year period, which would only be recovered if the Relevant Companies were successful in the Qld Proceeding. Furthermore, EY paid the sum of $70,000 out of its own funds into the Supreme Court of Queensland so that the Relevant Companies would not be in breach of the security for costs orders made by that Court on 2 March 2018.
(g) The value and nature of any property dealt with, or likely to be dealt with, by the Liquidator: s 473(10)(h) of the Act
The right to the proceeds from the share sale agreement[53] was an asset that was the subject of complex and long-running litigation. It was incumbent on the Liquidator to participate in the Qld Proceeding in order to protect and preserve those rights.
[53]See paragraph 20 above.
(h) The number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors: s 473(10)(j) of the Act
The Earning Companies do not have any current creditors. Consequently, the Liquidator has taken steps to communicate with approximately 82 Investors to notify them of this application and the orders and directions sought.
(i) Any other relevant matters: s 473(10)(l) of the Act
The work was performed was reasonable and it was performed by appropriately qualified staff. For example, more administrative tasks were performed by the less experienced staff whilst matters that raised significant or complex issues were performed by the more senior and experienced staff.
I have reviewed the Remuneration Report, including the Past Remuneration Schedule and the Table of Major Tasks Undertaken, along with the description of work given in the First Nikitins Affidavit. I have also reviewed the Future Task Schedule. These contain sufficient detail for me to be satisfied as to the amounts claimed. In particular, I am satisfied that:
(a) there was an appropriate degree of delegation of the work to be performed, in that the matters which could be adequately handled by junior staff were dealt with at a suitable level of seniority, experience and charge out rate;
(b) the tasks described are reasonable to have been performed, and the time taken to perform them (and therefore the amounts charged for them) were reasonable;
(c) the estimates provided for the future work are reasonable and it is reasonably necessary for the Liquidator to undertake that work; and
(d) the inclusion of the Liquidator’s fees associated with preparing the Remuneration Report and seeking approval of his remuneration is permissible and consistent with the authorities.[54]
[54]Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699, [54] (‘Starpicket’).
For a series of complex liquidations lasting over 10 years, I consider the Past Remuneration sought to be reasonable and I am satisfied that it is appropriate to approve the Past Remuneration in the amount sought as it relates to work which was reasonably necessary to be performed.
The Future Remuneration should also be approved in the amount sought, as I am satisfied that it represents a fair estimate of the work reasonably necessary to finalise the liquidations of the Earning Companies and the Earning Schemes.
Conclusion
Accordingly, I will approve the Liquidator’s remuneration and will make the Earning Companies Past Remuneration Orders, the Earning Schemes Past Remuneration Orders, and the Future Remuneration Orders.
I am also satisfied that it is appropriate to make the Indemnity Direction as sought by the Liquidator.
The Liquidator also seek orders that his costs of the Application be costs in the liquidations. It was necessary for the Liquidator to make the Application. I see no reason why his costs of doing so should not be costs in the liquidations, it is consistent with the authorities, and it is appropriate that such orders be made.
Once the parties have had an opportunity to consider these reasons, the Court requests that the Liquidator’s solicitor provide a draft form of order to my Associate.
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