Re FTX Australia Pty Ltd and FTX Express Pty Ltd (admin apptd)
[2023] VSC 451
•25 May 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 05010
IN THE MATTER of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) AND FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED)
BETWEEN:
| JOHN MOUAWAD in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) and FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED) & ORS (according to the attached Schedule) | Plaintiffs |
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JUDICIAL REGISTRAR: | Caporale JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 May 2023 |
DATE OF JUDGMENT: | 25 May 2023 |
DATE OF REASONS FOR JUDGMENT: | 14 August 2023 |
CASE MAY BE CITED AS: | Re FTX Australia Pty Ltd and FTX Express Pty Ltd (admin apptd) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 451 |
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CORPORATIONS – Administrators appointed – Application for determination of remuneration – s 60-10(1)(c) Insolvency Practice Schedule (Corporations) – Sufficiency of material to enable Court to make determination – Necessary work properly performed – Matters to which the Court must have regard – Remuneration reasonable.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms V Bell of counsel | Piper Alderman |
TABLE OF CONTENTS
Principles............................................................................................................................................. 2
Background......................................................................................................................................... 3
Work undertaken – general.............................................................................................................. 4
Work undertaken – specific............................................................................................................. 5
Work undertaken – absence of books and records.................................................................... 14
Estimates of total remuneration.................................................................................................... 15
Disbursements.................................................................................................................................. 15
Prima facie entitlement to remuneration.................................................................................... 15
No objections.................................................................................................................................... 16
Consideration of the matters set out in s 60–12 of the IPS....................................................... 16
Conclusion......................................................................................................................................... 19
ANNEXURE A.................................................................................................................................. 21
JUDICIAL REGISTRAR:
On 11 November 2022 the plaintiffs were appointed to act as the joint and several voluntary administrators of FTX Australia Pty Ltd (‘FTX Australia’) and FTX Express Pty Ltd (‘FTX Express’) (collectively, ‘Companies’).
Following their appointment, the plaintiffs, pursuant to s 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) being Schedule 2 of the Corporations Act 2001 (Cth) (‘IPS’),[1] sought determinations (plus other orders) specifying remuneration that they are entitled to receive for necessary work properly performed by them in relation to the administration of the Companies:
(a) in relation to FTX Australia, from 11 November 2022 to 26 February 2023 (‘first period’) in the sum of $467,290.50 plus GST and from 27 February 2023 to 16 April 2023 (‘second period’) in the sum of $97,571.00 plus GST (being a total of $564,861.50 plus GST); and
(b) in relation to FTX Express, for the first period, in the sum of $415,857.00 plus GST and for the second period, in the sum of $56,981.00 plus GST (being a total of $472,838.00 plus GST).
[1]Corporations Act 2001 (Cth) sch 2 (‘Insolvency Practice Schedule (Corporations)’).
The total amount sought for approval for the Companies for both the first and second periods is $1,037,699.50 plus GST.
On 25 May 2023 I made the Orders sought by the plaintiffs (‘Orders’). These are my reasons for making the Orders. A copy of the Orders is attached to these reasons and marked Annexure A.
In support of the Orders, the plaintiffs relied on affidavits sworn by John Mouawad (one of the plaintiffs) on 10 March 2023, 17 April 2023, 5 May 2023 and 9 May 2023, written submissions dated 5 May 2023, and oral submissions made on 8 May 2023.
Principles
In Re Pluton Resources Ltd,[2] I set out the principles that apply when the Court is tasked with determining the remuneration an external administrator is entitled to receive and, for convenience, repeat them here:
The principles concerning applications for approval of 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 of the Corporations Act 2001 applied. However, the matters contained in s 60-12 of the IPS are materially the same as the matters that were set out in s 449E(4) of the Act (now repealed). Accordingly, the authorities that deal with the now repealed provisions concerning Court approval of a liquidator’s remuneration remain relevant.
Gardiner AsJ summarised the relevant principles in Re Traditional Values Management Limited (in liq) at paragraphs [18] to [25].[3] For convenience I adopt his Honour’s summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations. I summarise those principles as relevant to the application as follows: (a) a summary procedure was involved, not unlike that applicable to the taxation of a solicitor’s costs, where not all the rules that normally apply to an action are applicable; (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, bringing an independent mind to the assessment procedure. If a prima facie case is established, the Court must then consider the validity of any objections; (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 claim and decide if any objection should be taken, and 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; and (d) 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.[4]
Black J also summarised the applicable principles in Re Sakr Nominees Pty Ltd, where his Honour stated at [23] that: [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 by the liquidator. 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.[5]
[2][2023] VSC 160 at [15] – [17].
[3][2012] VSC 650 at [18] – [25].
[4](2011) 85 ACSR 144 at [60].
[5][2017] NSWSC 668 at [23] (‘Re Sakr Nominees’).
Background
The shares in FTX Express are wholly owned by FTX Australia. The shares in FTX Australia comprise various classes and are held by FTX Trading Ltd (‘FTX Trading’), a company incorporated and registered in Antigua and Barbuda, and IFS Group Ltd, a company having its address in the Cayman Islands.
FTX Express and FTX Australia are part of the ‘FTX Group’. FTX Trading has entered formal bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
FTX Express was a digital currency exchange, registered with AUSTRAC. FTX Express was used by Australian customers depositing fiat currency to acquire digital assets (or cryptocurrency such as Bitcoin) which were held in the custody of FTX Trading, or disposing of digital assets in return. FTX Express does not hold an Australian Financial Services Licence as it does not deal in financial products.
FTX Australia operated an ‘online’ trading platform for ‘over the counter’ derivative financial products primarily connected with various digital assets and related financial instruments. Put simply, a customer wishing to participate in derivatives trading via the FTX platform would open an account with FTX Australia and then proceed to enter financial trades with FTX Australia using cryptocurrency via the platform provided by FTX Trading.
FTX Australia held an Australian Financial Services Licence which was suspended by ASIC on 14 November 2022.
Customers of FTX Australia were required to open an account with FTX Trading which held digital assets as collateral in respect of financial trades made with FTX Australia. Customers of FTX Australia could deposit digital assets directly with FTX Trading or convert fiat currency into digital assets via FTX Express for deposit with FTX Trading.
As at the date of the appointment of the plaintiffs, FTX Express had 17,888 customers with trading accounts and FTX Australia had 11,364 customers with trading accounts.
The plaintiffs estimate that there are 29,234 separate customers that had investments in cryptocurrency or fiat that may have lost significant property in using the FTX Trading platform to buy and sell cryptocurrencies. Those customers do not fall within obvious categories and are likely to have a unique claim.
In addition to the customers, the plaintiffs estimate that there are 12 trade creditors and that the Companies employed five employees.
Work undertaken – general
Since their appointment, the plaintiffs have assessed the Companies’ financial position and reviewed their records to determine the most appropriate course of action, identified customers and provided them with updates, identified trade creditors, engaged with employees, attended to the statutory notifications required by the Corporations Act 2001 (Act),[6] engaged with ASIC and contacted and conferred with advisers conducting the US bankruptcy proceedings for FTX Trading.
[6]Corporations Act 2001 (Cth).
As at the date of their appointment, the plaintiffs have identified approximately $39,000,000.00 in funds held in accounts in the name of FTX Express and approximately $3,000,000.00 in funds held in the accounts of FTX Australia.
The plaintiffs are conducting investigations into the affairs of the Companies. They have not been able to determine who has the beneficial entitlement to the funds referred to above.
The plaintiffs have sent emails to all of the customers and trade creditors. Hundreds of emails have been received by the plaintiffs from customers making enquiries about their accounts. Those emails demonstrate that the voluntary administration of an online trading platform gives rise to different challenges as compared to the typical insolvency which largely involves trade creditors. Accordingly, more regular updates to creditors and customers from the plaintiffs are necessary.
On 22 November 2022 the plaintiffs circulated to all potential creditors their initial report to creditors and the notice of the first meeting of creditors.
On 1 December 2022 the first meeting of creditors of the Companies was held: 348 persons registered to attend and 238 ultimately attended. Of the 348 who registered, 181 recorded having lodged a proof of debt claim in the administration of FTX Australia and 53 in the administration of FTX Express. One creditor (being FTX Trading) lodged a proof of debt in the administration of both of the Companies.
Before the first meeting the plaintiffs received proofs of debt or claim for approximately $97,611,066.00.
The plaintiffs’ preliminary opinion is that customer claims fall into three broad categories: on-chain transfers to FTX.com (using cryptocurrency), fiat transfers to FTX.com (AUD/USD) and derivative customers.
The administration of the Companies is further complicated by the parallel bankruptcy proceedings that are being conducted in the United States. It is likely that cross-border insolvency issues will arise.
The Companies’ involvement with FTX Trading and their interaction with Australian users is complex and requires close and careful analysis to determine who are creditors of the Companies, the quantum of their claim and the priorities of their entitlements (if any) to the assets in the administrations.
Work undertaken – specific
For the purpose of recording time for work performed on the administrations, the plaintiffs have opened two files, one in relation to each of the Companies. The plaintiffs and their staff have allocated the time spent on work undertaken in the administrations of the Companies by recording work undertaken solely in relation to FTX Express, work undertaken solely in relation to FTX Australia and work undertaken for the benefit of both Companies.
The plaintiffs have prepared a schedule summarising the work performed by them and their staff. These summaries are referred to as WIP Schedules (‘WIP Schedules’). The WIP Schedules provide a summary of the name and position of each person who has performed a task and the total amount charged by that person in respect of each task category.
In addition to the WIP Schedules, the plaintiffs have provided to the Court, firstly, a table which sets out the time charged to each major task area by staff members working on the administration of the Companies and the remuneration associated with that task and, secondly, a summary of major tasks performed by category (‘summary of billable tasks’). The latter includes a general description of the work undertaken together with a detailed description of the task.
The task categories are assets, creditors, employees, statutory compliance, trading and administration, risk mitigation and legal issues.
For the first period, the largest amounts of time were spent on statutory compliance (for both companies, 443.7 hours at $299,250.50), administration, risk mitigation and legal issues (for both companies, 412.9 hours at $285,265.00) and creditors (for both companies, 290.1 hours at $169,602.00). In relation to statutory compliance, general descriptions of the work include maintaining books and records, reporting to ASIC, the ATO and other statutory bodies and preparing for and carrying out the first meeting of creditors and investigations. For administration, risk mitigation and legal issues, general descriptions of the work performed include document maintenance and file review, performing forensic IT investigations and investigating insurance and legal issues. For creditors, general descriptions of the work performed include responding to creditor enquiries, preparing reports to creditors and inspecting proofs of debt.
Not surprisingly, those three task areas were also the three task areas with the greatest volume in relation to the work undertaken in relation to each individual Company.
For the second period, the largest amounts of time were again spent on statutory compliance (for both companies, 83.5 hours at $56,245.00), administration, risk mitigation and legal issues (for both companies, 85.2 hours at $53,443.50) and creditors (50.4 hours at $26,882.00).
The WIP Schedules reveal that the bulk of the work has been undertaken at the Partner, Director, Associate Director and Manager level. That is not surprising for an administration that is complex and unusual.
Mr Mouawad states that given the nature and complexities of the work involved, the plaintiffs determined that it was not appropriate to delegate the work that they have performed to more junior employees. Mr Mouawad, at paragraph 13 of his affidavit sworn on 5 May 2023, gives examples of the work that, in his opinion, justified Partner or Director involvement. I accept that the work set out in those examples is work that was properly done at that senior level.
Mr Mouawad also gives evidence about the work undertaken by KordaMentha’s Digital Asset Lead whose classification is Director, and why it was necessary that it be undertaken at this level. I accept that this work, which included dealing with the US advisers and the investigations into the Companies’ involvement and interactions with FTX Trading (particularly in respect of how different types of customer transactions were dealt with on the FTX.com platform) was performed at the appropriate level by a person with the necessary skills and background.
Mr Mouawad also gives evidence about why it was necessary that a significant amount of work was undertaken by Ms Harman, at the Director level, and Mr Meehan, at the Associate Director level. I accept that it was necessary for a person at the Director level to organise and manage the first meeting of creditors, given the extraordinary number of customers (and potential creditors) involved. I also accept that it was necessary for a person at the Associate Director level, and not a more junior level, to spend time on investigations, given the complexity of the investigations involved in these administrations.
Mr Mouawad also states that the plaintiffs tried to ensure a consistent team was assigned to work on the administrations and that a few key individuals remained involved throughout so that knowledge gained about the complex matters was not lost or work duplicated, and that, where appropriate, work was appropriately delegated.
Timesheets were also prepared for work performed in relation to each of the Companies (timesheets). The timesheets record the total amount of work undertaken by the plaintiffs and their staff by reference to the employee schedule of rates adopted by the plaintiffs. There are separate timesheets for each of the Companies. For work undertaken for the benefit of both Companies, the work has been recorded on each of the timesheets by allocating 50% of the time spent on each task to each file.
The timesheets record the date the information was posted on the timesheet, the person who undertook the work, the task area, the task description, a detailed narration of the work undertaken, how much time was spent on the task, the relevant hourly rate and the amount charged.
For the first period, there are:
(a) for FTX Express, approximately 750 entries; and
(b) for FTX Australia, approximately 915 entries.
For the second period, there are:
(a) for FTX Express, approximately 150 entries; and
(b) for FTX Australia, approximately 260 entries.
Accordingly, there are approximately 2075 entries in the timesheets which provide information about the work undertaken by the plaintiffs and their staff. No doubt, this is the itemised account that Black J, in Re Sakr Nominees, thought needed to be provided to the Court (at least generally) to determine an application for the approval of an external administrator’s remuneration.[7]
[7]Re Sakr Nominees (n 5), [23].
In reviewing the timesheets, I did not examine each and every entry. Instead, I arbitrarily selected ten from each page of the timesheets and of the ten on each page, selected an amount charged that was over $500. Each such entry was examined by me more closely to determine if the task being performed was undertaken by a person of the appropriate level of responsibility, whether the time taken was reasonable and whether the task performed was necessary in the conduct of the administration. I am satisfied of all those matters.
In reviewing the timesheets, I paid particular attention to the entries for the task areas on which the most time was spent (and, consequently, resulted in the highest amount of fees) – as indicated above, these task areas were ‘statutory compliance’ and ‘administration, risk mitigation and legal issues’. When considering the amount of work performed in these task areas and whether it was necessary work in the administrations, it is important to understand (and set out in these reasons) what the detailed tasks were within these task areas.
The detailed tasks performed in the ‘statutory compliance’ task area were retrieval and storage of electronic records and physical books and records, retrieved from the Companies’ IT systems and premises, administration in relation to storage of the books and records, filing information received from FTX Australia employees, providing notifications to ASIC regarding the Administrators’ appointment, engaging in general correspondence with ASIC, preparing and lodging ASIC forms, including Forms 505, 507 and 5011, preparing and lodging a Notification of Appointment of an Administrator and a Notice of First Meeting of Creditors on the ASIC public notices website, providing notice of the appointment, engaging in general correspondence with the ATO, corresponding and meeting with directors regarding the operations of the Companies and the relationship between the Companies and FTX Trading, requests for the Report on Company Activity and Property (‘ROCAP’) and books and records, reviewing the ROCAP and submitting it to ASIC, sending follow up requests to directors who had not submitted a ROCAP, meeting with directors regarding various matters throughout the duration of the engagement, preparing meeting notices, proxies and advertisements, preparing for the first meeting of creditors, including the set-up of IT infrastructure, preparing meeting documents, including the agenda, attendance register and list of creditors, issuing guidance to creditors on how to register and attend the meeting via Zoom, holding the first meeting of creditors on 1 December 2022, responding to creditor queries and questions before, during and after the meeting, collating all questions asked during the meeting to enclose as an appendix to the minutes, completing an FAQ for creditors regarding the first meeting of creditors, preparing and lodging the minutes of the meeting with ASIC, uploading the minutes of the meeting on the creditor page of the KordaMentha website, collecting and reviewing books and records, conducting and summarising statutory searches, including company, PPSR, director and motor vehicle searches, preparing comparative financial statements of the Companies, including the balance sheet, profit and loss and cash flow statements, preparing the statutory investigation report to be included in the Section 439A Report to Creditors, reviewing deficiencies in system access and available data which was removed prior to the appointment of the Administrators (held by FTX Trading Limited), developing an information request list for the US Bankruptcy trustee, including customer trading information, positions, pending withdrawal information, KYC data, correspondence between the Companies and other entities in the FTX Group, liaising with the US Bankruptcy trustee to receive requested data, conducting a detailed review of the data received and working with the FTX Australia staff to rebuild a database to review creditors’ positions, preparing a memorandum to explain the data received from the US Bankruptcy trustee, conducting interviews with FTX Australia staff regarding the operation of the Companies and preparing briefing documents to legal advisers regarding the operational complexities of the Companies.
The detailed tasks in the ‘administration, risk mitigation and legal issues’ task area were engagement planning, planning and reviewing the trading strategy, holding internal meetings to discuss the trading strategy, discussing the status of the administration, strategy and any outstanding issues, filing documents, updating the work programs, reviewing files, corresponding with the directors regarding the IT infrastructure and cyber security settings, conducting cyber security reviews, identifying and preserving physical devices located onsite using a variety of hardware and software based digital forensic tools, forensically imaging devices, removing hard drives from the Companies’ devices and placing them in secure storage, photographing and documenting all of the Companies’ devices, internally storing the data copied from the Companies’ IT systems, finalising the memorandum for work undertaken regarding the forensic acquisition of data relating to the Companies, responding to requests from ASIC regarding the delivery of data, reviewing insurance policies existing prior to the Administrators’ appointment and determining whether they need to be continued or ceased, identifying potential issues requiring the attention of insurance specialists, corresponding with insurance brokers in relation to both initial and ongoing insurance requirements, opening the Administrators’ accounts with the National Australia Bank, preparing transactions, carrying out bank account reconciliations, corresponding with the bank regarding specific transactions, banking deposits, carrying out risk assessment, carrying out processing in relation to client accounting, word processing, recording of time including any required details, preparing remuneration schedules, reviewing the recording of time, including narrations and disbursements, preparing the first application to the Court for the approval of remuneration including reviewing the professional fee narrations and summary of work performed, conducting cyber security reviews of all IT infrastructure of the Companies, conducting a physical security review of the premises, implementing security measures, preparing media releases, responding to media requests, opening the creditor page on the KordaMentha website for the Companies, configuring network access for the creditor page, updating the creditor page with creditor update documents, corresponding with legal advisers regarding the administration, corresponding and finalising the Court application extending the convening period of First Meeting of Creditors, corresponding and finalising the Court application regarding the extended convening of the Second Meeting of Creditors, corresponding with legal advisers regarding the affidavit concerning the remuneration application, discussing the application to the Court to seek directions on various matters such as the classification of creditors and distribution of assets, and drafting affidavits for filing with the Court
These detailed tasks are recorded in the summary of billable tasks. When I reviewed an entry on the timesheets in relation to one of the two task entries on which most time was spent, I considered that entry in the context of the detailed tasks recorded in the summary of billable tasks. By doing that, I was not only satisfied that the work was necessarily performed, but was also satisfied that there was consistency between the summary of billable tasks and the timesheets.
During the first and second periods, I analysed the number of hours worked by each of Mr Mouawad, Mr Meehan, Ms Harman and the Digital Asset Lead, Mr Hewson. The first period is approximately 13 weeks in duration (allowing for two weeks of no work over the Christmas and New Year period). Thirteen weeks equates to approximately 520 hours of available work time for one person (assuming a 40 hour working week). The second period is for a period of approximately six weeks. Six weeks equates to approximately 240 hours of available work time for one person (again, assuming a 40 hour working week).
During the first period Mr Mouawad worked a total of 409.8 hours on the administrations, Mr Meehan worked a total of 212.2 hours on the administrations, Ms Harman worked a total of 201.8 hours on the administrations and Mr Hewson worked a total of 433.4 hours on the administrations.
During the second period Mr Mouawad worked a total of 28.4 hours on the administrations. Mr Meehan hardly worked on the administrations at all, and it appears Ms Harman did no work on the administrations (her role seems to be have been taken over by Roman Barbera). Mr Hewson worked a total of 160 hours on the administrations.
Considering the detailed tasks that were performed, these hours worked by the plaintiff and his staff seem proportionate and necessary, especially the work of Mr Mouawad and Mr Hewson given their particular skills and experience. Additionally, the high number of hours worked in the first period seems reasonable given the tasks that had to be performed at the start of the administration and the novel and complex issues that the plaintiffs encountered upon appointment.
The analysis by me of the WIP Schedules, the summary of billable tasks and many hundreds of entries in the timesheets is perhaps more than what was envisaged by some of the previous decisions that deal with remuneration applications, wherein it was decided that a summary procedure is to be adopted, not unlike that applicable to the taxation of a solicitor’s costs, and that the initial task of the Court is to consider if a prima facie case is made out.[8] However, given the amount of remuneration sought by the plaintiffs for work done over a relatively short period of time , I was of the view that a somewhat detailed analysis was necessary.
[8]See, for example, IMO Traditional Values Management Limited (in liq) [2012] VSC 650 at [18]–[25].
The plaintiffs have also provided to the Court a schedule of hourly rates. Mr Mouawad states that these are in line with market rates for firms of similar size and capability, and accurately reflect the experience, seniority and capability of each staff member. Those rates appear to be at the higher end of rates charged by liquidators according to the fee schedules I have seen which are annexed to some ‘consents to act’ filed by liquidators in winding up applications in this Court. Despite being at the higher end, they are still within the range of what one might describe as the ‘market’. These administrations were not standard administrations and necessitated a high degree of experience, judgement and responsibility.
Mr Mouawad also states that he considers time charging to be the most appropriate basis of calculating the remuneration because it accurately reflects the actual time spent on the administrations at an hourly rate applicable to staff experience.
Work undertaken – absence of books and records
The plaintiffs have only limited books and records of the Companies. Based on their investigations, the plaintiffs understand that only limited records were actually kept and the directors of FTX Australia relied on the FTX.com trading platform and other systems operated by FTX Trading to monitor the positions of the customers. However, on 11 November 2022, the Companies lost all access to and visibility of the FTX trading database and platform. Accordingly, the plaintiffs cannot determine the status of individual customers.
The plaintiffs have been working with their counterparts in the United States to better understand the underlying position both in Australia and globally, and in particular, the critical issue of where the collateral is held and whether it still exists. The plaintiffs have also worked to enhance their understanding of the creditor claims in respect of the Australian entities, to have visibility of open derivative positions, to adjudicate and review the creditor proofs of debts, and for the purposes of investigation.
The plaintiffs have worked with the US advisers to identify the data required and have then obtained access to the data relating to the Australian domiciled FTX.com users for the primary purposes of identifying the amounts owed to each user and understanding the total amount owed to various categories of users. Following this review, a process was undertaken to re-build, from scratch, a database of the Companies’ information systems.
The plaintiffs have had to regularly meet with their US counterparts, largely to explain what information the plaintiffs lacked regarding parts of the user transactions that occurred on the FTX.com platform, on which they have neither information nor visibility.
Estimates of total remuneration
As required by s 70-35 of the Insolvency Practice Rules (Corporations) 2016,[9] the plaintiffs gave notice to as many of the creditors as was reasonably practicable about the method by which the plaintiffs sought to be remunerated, the rate of remuneration, an estimate of the expected amount of their remuneration and the method by which disbursements were to be calculated.
[9]Insolvency Practice Rules (Corporations) 2016 (Cth) (n 1) s 70-35.
In that notice, the plaintiffs estimated that the administrations would cost approximately $1,000,000.00 to $1,200,000.00 (excluding GST) for each of the Companies.
Disbursements
For the first and second periods, the plaintiffs have incurred the following internal disbursements:
(a) for FTX Australia, $5,029.45, being an ASIC funding levy in the sum of $400 and $4,629.45 for monthly data room fees incurred for the use of a document review platform; and
(b) for FTX Express, $400, being the ASIC funding levy.
I am satisfied that these disbursements were reasonable and necessarily incurred in the administrations.
Prima facie entitlement to remuneration
I have considered all of the material forwarded to the Court which sets out the work undertaken by the plaintiffs and their staff, and in particular have considered the WIP Schedules, summary of billable tasks and timesheets. In my view, this material complies with the requirement of r 9.2.6 of the Supreme Court (Corporations) Rules 2013 (which were the applicable Rules when I made the Orders) (Rules) and the standard described by previous decisions that have dealt with administrators’ remuneration, such as Traditional Values Management Limited (In Liquidation) (Special Purpose Liquidator Appointed).[10] Having considered all of this material, I am also of the view that that material, considered in the context of these complex and novel administrations, establishes that the remuneration sought is prima facie fair and reasonable.
[10][2015] VSC 338 at [42] – [47].
No objections
As recorded in ‘Other Matters’ of the Orders, the plaintiffs have given notice to creditors of their application for the determination of their remuneration.
No objections to the remuneration sought by the plaintiffs have been received by them (or by the Court).
Consideration of the matters set out in s 60–12 of the IPS
I now turn to consider the matters provided for in s 60–12 of the IPS which the Court must take into account when exercising the power to determine the plaintiffs’ remuneration.[11]
[11]Insolvency Practice Schedule (Corporations) (n 1) s 60-12.
As set out above, I am of the view that, firstly, the evidence filed in support of the plaintiffs’ application demonstrates a prima facie case that the remuneration sought by the plaintiffs is fair and reasonable and, secondly, that the evidence complies with the standard required by the Rules and previous remuneration decisions. In this respect, it also addresses the matters set out in s 60 -12 (a) to (d) which together amount to an evaluation as to whether the remuneration sought is fair and reasonable.[12]
[12]Ibid, s 60-12(a) – (d).
Sections 60-12(e) to (g) oblige the Court to consider the complexity of the work performed, the extent to which the administrators were required to deal with extraordinary issues and the extent to which they were required to accept a higher level of risk or responsibility than what is usually the case.[13]
[13]Ibid, s 60-12(e) – (g).
It is very clear that these administrations were extremely complex. The amount of work performed in the administrations by the plaintiffs and their staff was well above what is usually encountered in an unexceptional administration. Features of the administrations that meant that the work performed was complex, extraordinary issues had to be dealt with, and that the plaintiffs had to accept a higher level of risk or responsibility include the following:
(a) the Companies’ involvement with FTX Trading, domiciled in Antigua and Barbuda and part of US bankruptcy proceedings for the global FTX group, and their interaction with Australian users;
(b) the difficulty in properly identifying creditors, the quantum of their claims and the priorities of their entitlements (if any) to the assets of the administrations;
(c) the need to analyse the various types of user transactions so as to understand the facts and circumstances involved in the transactional chain of customers and creditors of the Companies;
(d) the seeking of legal advice as to the priorities of user claims and their entitlements, and the need for direction from the Court;
(e) the deficiency in the Companies’ records;
(f) the need to liaise with US counterparts, for reasons including the transacting of Australian domiciled users with the Companies using the FTX.com platform, being a platform controlled by FTX Trading, and the need to understand where the collateral is held and whether it still exists;
(g) rebuilding a database to enable information about each Australian domiciled user to be reviewed;
(h) reviewing this data which contains over 12 raw data sets, some of which have over 750,000 line items of user information;
(i) the many thousands of customers of the Companies who are potential creditors and dealing with queries from some of them;
(j) responding to ASIC notices to produce certain material;
(k) instituting legal proceedings in relation to funds held by FTX Express;
(l) the provision of more regular updates to creditors and customers than might occur in a typical voluntary administration;
(m) receipt, before the first meeting of creditors, of approximately 800 proofs of debt in a total amount of approximately $97,611,066.00; and
(n) the ambiguities between what is set out in the FTX Australia Trading Terms and what occurred in reality, which has added complexity to the plaintiffs’ investigations into determining which customers and creditors are entitled to funds held by the Companies.
The complexity of these novel administrations meant that the matters set out in s 60-12(e) to (g) of the IPS clearly involved a high level of judgement, responsibility, accountability and skill.[14]
[14]Ibid, s 60-12(e) – (g).
In relation to s 60–12(h) of the IPS,[15] I have also taken into account the value and nature of any property dealt with by the plaintiffs, being approximately $42,000,000.00 recovered in the administrations to date.
[15]Ibid, s 60-12(h).
Section 60–12(i) of the IPS provides that the Court must have regard to the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors.[16] This matter has been dealt with in preceding paragraphs.
[16]Ibid, s 60-12(i).
Because the plaintiffs’ remuneration is worked out on a time cost basis, s 60–12(j) of the IPS provides that the Court must have regard to the time properly taken by them and their staff in performing the work.[17] A time/cost basis was adopted as it fairly reflects the necessary work performed and ensures that creditors are only charged for work performed. The plaintiffs have, as described in these reasons, provided a detailed account of the time spent by them and their staff on the various tasks in the administrations. After considering and examining that material, I am satisfied that the time spent on the tasks was both proportionate and reasonable in the context of these complex and somewhat unusual administrations.
[17]Ibid, s 60-12(j).
Conclusion
I am satisfied that the remuneration sought by the plaintiffs is for work necessarily and properly performed, is reasonable in all the circumstances of these administrations and make the determinations as sought.
SCHEDULE OF PARTIES
| S ECI 2022 05010 | |
| BETWEEN: | |
| JOHN MOUAWAD in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (Administrators Appointed) and FTX EXPRESS PTY LTD (ACN 657 907 894) (Administrators Appointed) | First Plaintiff |
| SCOTT DAVID HARRY LANGDON in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (Administrators Appointed) and FTX EXPRESS PTY LTD (ACN 657 907 894) (Administrators Appointed) | Second Plaintiff |
| RAHUL GOYAL in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (Administrators Appointed) and FTX EXPRESS PTY LTD (ACN 657 907 894) (Administrators Appointed) | Third Plaintiff |
ANNEXURE A
| IN THE SUPREME COURT OF VICTORIA |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 05010
IN THE MATTER of FTX AUSTRALIA PTY LTD (ACN 129 217 812)
(ADMINISTRATORS APPOINTED)
BETWEEN:
| JOHN MOUAWAD in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) and FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED) & ORS (according to the attached Schedule) | Plaintiffs |
GENERAL FORM OF ORDER
| JUDICIAL REGISTRAR: | Judicial Registrar Caporale |
| DATE MADE: | 25 May 2023 |
| ORIGINATING PROCESS: | Originating Motion filed on 7 December 2022 |
| HOW OBTAINED: | At the hearing of the proceeding and thereafter on the papers |
| APPEARANCES: | Ms V Bell, of Counsel, and Ms J Hardwick, solicitor, for the Plaintiffs |
OTHER MATTERS: |
A.The Court is satisfied that the technical requirements in s 42G of the Evidence (Miscellaneous Provisions) Act 1958 (Vic) (Evidence Act) are met and that all parties consent to the making of the direction.
B.The Court orders under s 42E(1) of the Evidence Act that all persons shall appear, give evidence and make submissions in this proceeding on 8 May 2023 by audiovisual/audio link.
C.On 11 November 2022 the plaintiffs were appointed to act as the voluntary administrators of FTX Australia Pty Ltd and FTX Express Pty Ltd (Companies). They seek a determination from the Court approving the remuneration they are entitled to receive for necessary work properly performed by them in relation to the administration of the Companies for the periods 11 November 2022 to 26 February 2023 (first period) and 27 February 2023 to 16 April 2023 (second period) (remuneration application). They also seek other orders, including an order that r 9.2(2) of the Supreme Court (Corporations) Rules 2013 (Corporations Rules) be dispensed with.
D.In support of their application, the plaintiffs rely on affidavits filed on 10 March 2023, 17 April 2023, 5 May 2023 and 9 May 2023, together with written submissions dated 5 May 2023 and oral submissions made on 8 May 2023.
E.The plaintiffs no longer seek orders approving the payment of their legal expenses.
F.Rule 9.2 of the Corporations Rules sets out a process where applications for Court approval of the remuneration of an external administrator of a company can be determined in the absence of the public and without an appearance by the applicant/administrator (heard on the papers). As part of that process, r 9.2(2) provides that certain persons (such as creditors) be served with a prescribed notice of the intention of the external administrator (such as the plaintiffs) to apply for a determination of remuneration and the affidavit(s) relied upon. Following service, if no objections are made to the remuneration claimed, the application can be heard on the papers.
G.On 20 March 2023 the plaintiffs issued an update to known creditors (March update). Section 7 of the March update provided notice to creditors that the plaintiffs had filed with the Court their application for a determination of their remuneration for the first period and provided a link so the application and the affidavit in support could be accessed, together with advice that the application would be heard on 8 May 2023. Also included in section 7 was advice to creditors that any notice of any objections to the orders sought by the plaintiffs could be sent to a given email address by 14 April 2023. No objections were received by the plaintiffs.
H.On 20 April 2023 the plaintiffs issued another update to known creditors (April update). Section 5.2 of the April update advised creditors that the plaintiffs had filed another affidavit seeking approval of their remuneration for the second period, that this further application would be considered at the same time as the earlier application and provided a link so the further affidavit could be accessed. Also included in section 5.2 was advice to creditors that any notice of any objections to the orders sought by the plaintiffs could be sent to a given email address by 4 May 2023. No objections were received by the plaintiffs.
The March update and the April update were sent to all known customers of the Companies. The plaintiffs also placed scanned and sealed copies of the affidavits in support of the remuneration application on KordaMentha’s website for the Companies.
J.In those circumstances, the Court will dispense with compliance with the requirement of r 9.2(2) of the Corporations Rules and following the hearing on 8 May 2023 the remuneration application can be determined on the papers
K.This is a complex and on-going administration. It is important that the material filed in support of the remuneration application is considered as soon as possible. As stated above, there are no objections to the remuneration sought by the plaintiffs. After considering all of the material relied upon by the plaintiffs, together with the written and oral submissions, the Court is satisfied that the remuneration and disbursements sought by the plaintiffs are fair and reasonable and will make the orders sought by the plaintiffs. Written reasons for making paragraphs 2 – 7 of these Orders will be delivered in approximately 4 – 6 weeks.
L.This Order is authenticated by the Judicial Registrar pursuant to r 60.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).
THE COURT ORDERS THAT:
Pursuant to r 1.3 of the Supreme Court (Corporations) Rules 2013 (Corporations Rules) and r 2.04(1) of the Supreme Court (General Civil Procedure) Rules 2015, compliance with the requirements of r 9.2(2) of the Corporations Rules is dispensed with.
FTX Australia Pty Ltd (ACN 129 217 812) (Administrators Appointed)
Pursuant to section 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) being Schedule 2 of the Corporations Act 2001 (Cth) (IPS) the remuneration that the plaintiffs are entitled to receive for necessary work properly performed by them in the conduct of the administration of FTX Australia Pty Ltd (ACN 129 217 812) (Administrators Appointed) (FTX Australia) for the period 11 November 2022 to 26 February 2023 be fixed in the total sum of $467,290.50 plus GST.
Pursuant to section 60-10(1)(c) of the IPS the remuneration that the plaintiffs are entitled to receive for necessary work properly performed by them in the conduct of the administration of FTX Australia for the period 27 February 2023 to 16 April 2023 be fixed in the total sum of $97,571.00 plus GST.
Pursuant to section 90-15 of the IPS the plaintiffs are entitled to draw from the funds held in the bank account bearing BSB 083004 and account number 555853699 in the name of FTX Australia:
(a)the plaintiffs’ remuneration fixed in accordance with Orders 2 and 3 above; and
(b)the plaintiffs’ internal disbursements for the period 11 November 2022 to 16 April 2023 fixed in the total sum of $5,029.45.
FTX Express Pty Ltd (ACN 657 907 894) (Administrators Appointed)
Pursuant to section 60-10(1)(c) of the IPS the remuneration that the plaintiffs are entitled to receive for necessary work properly performed by them in the conduct of the administration of FTX Express Pty Ltd (ACN 657 907 894) (Administrators Appointed) (FTX Express) for the period 11 November 2022 to 26 February 2023 be fixed in the total sum of $415,857.00 plus GST.
Pursuant to section 60-10(1)(c) of the IPS the renumeration that the plaintiffs are entitled to receive for necessary work properly performed by them in the conduct of the administration of FTX Express for the period 27 February 2023 to 16 April 2023 be fixed in the total sum of $56,981.00 plus GST.
Pursuant to section 90-15 of the IPS the plaintiffs are entitled to draw from the funds in held in the bank account bearing BSB 083004 account number 555977536 in the name of FTX Express:
(a)the plaintiffs’ remuneration fixed in accordance with Orders 5 and 6 above; and
(b)the plaintiffs’ internal disbursements for the period 11 November 2022 to 16 April 2023 fixed in the sum of $400.00.
Other
Pursuant to r 28A.06(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), the confidential exhibits “JM-2” and “JM-3” to the affidavit of John Mouawad sworn on 10 March 2023 and the confidential exhibits “JM-5” and “JM-6” to the affidavit of John Mouawad sworn on 17 April 2023 are confidential and are to be held on the Court file on that basis and not be disclosed to any person without the leave of the Court, sought upon five days’ written notice to the plaintiffs’ solicitors.
The plaintiffs’ costs of and incidental to this application are to be costs in the administrations of FTX Australia and FTX Express.
| DATE AUTHENTICATED: 25 May 2023 |
| JUDICIAL REGISTRAR CAPORALE |
SCHEDULE OF PARTIES
| S ECI 2022 05010 | |
| BETWEEN: | |
| JOHN MOUAWAD in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) and FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED) | First Plaintiff |
| SCOTT DAVID HARRY LANGDON in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) and FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED) | Second Plaintiff |
| RAHUL GOYAL in his capacity as Voluntary Administrator of FTX AUSTRALIA PTY LTD (ACN 129 217 812) (ADMINISTRATORS APPOINTED) and FTX EXPRESS PTY LTD (ACN 657 907 894) (ADMINISTRATORS APPOINTED) | Third Plaintiff |
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