Re Koori Employment Enterprises Co-Operative Ltd (In Liquidation)
[2016] VSC 245
•13 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2015 05082
IN THE MATTER of KOORI EMPLOYMENT ENTERPRISES CO-OPERATIVE LTD (IN LIQUIDATION) (ABN 40 715 715 805)
BETWEEN:
| KEITH LAURENCE SUTHERLAND AND IN HIS CAPACITY AS LIQUIDATOR OF KOORI EMPLOYMENT ENTERPRISES CO‑OPERATIVE LTD (IN LIQUIDATION) (ABN 40 715 715 805) | Plaintiff |
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JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 February 2016 |
DATE OF JUDGMENT: | 13 May 2016 |
CASE MAY BE CITED AS: | Re Koori Employment Enterprises Co-Operative Ltd (In Liquidation) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 245 |
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CO-OPERATIVES – s 449 of the Co-operatives National Law – Application for review of remuneration of liquidator of Co-operative – Application of discretionary criteria prescribed by s 504 of the Corporations Act 2001 (Cth) – Application opposed – Orders made increasing liquidator’s remuneration.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O Bigos | Thomson Geer |
| Mr John Martin and Mr Manish Gupta a director of Riti Pty Ltd appeared in person to oppose the application |
HIS HONOUR:
Introduction
The plaintiff, Mr Sutherland, is the liquidator of Koori Employment Enterprises Co‑Operative Ltd (‘the Co-Operative’). By originating process dated 28 September 2015, Mr Sutherland applies for a review of his remuneration as the liquidator of the Co-Operative.
The Co-Operative is incorporated under the Co-operatives National Law (‘National Law’). On 5 August 2014, Mr Sutherland was appointed as the administrator of the Co‑Operative under Part 4.1 of the National Law (which is found in the appendix to the Co-operatives (Adoption of National Law) Act 2012 (NSW) and applies in Victoria under s 4 of the Co-operative National Law Application Act 2013 (Vic).
Part 4.1 of the National Law provides for voluntary administration of co-operatives, and essentially adopts the provisions of the administration of companies in Part 5.3A of the Corporations Act 2001 (Cth) (‘Corporations Act’). Part 4.5 of the National Law provides for a winding up of a co-operative. Section 444(2) provides that a co‑operative may be wound up in the same way, and in the same circumstances, as a company under the Corporations Act. Section 444(3) relevantly provides that the winding up of a co-operative is declared to be an applied Corporations legislation matter for the purposes of Part 3 of the Corporations (Ancillary Provisions) Act 2001 (Vic) (Corporations application legislation) in relation to Parts 5.4, 5.4A, 5.4B, 5.5 and 5.6 of the Corporations Act (subject to certain modifications which are not relevant to present circumstances).
Section 449 of the National Law provides:
(1)A member or creditor of a co-operative or the liquidator may, at any time before the completion of the winding up of the co-operative, apply to:
(a)the Supreme Court, except where paragraph (b) applies; or
(b)the Registrar, where the liquidator was appointed by the Registrar;
to review the amount of remuneration of the liquidator.
(2)The Supreme Court or the Registrar, respectively, may review the remuneration and (if thought fit) vary the amount of the remuneration.
In Re Hunter Rural Division General Practice Limited (in liquidation),[1] Brereton J considered an application by voluntary liquidators, who had applied by originating process for an order pursuant to s 504 or s 511 of the Corporations Act, for the Court to fix their further remuneration to compensate for work done in excess of the amount which had been approved to date, together with provision for work to be undertaken to complete the liquidation. He observed at [8]:
It is clear enough that there is power under either s 504 or under s 511 to do so. I am inclined to think that s 504 is probably the appropriate source of power here, since the creditors have fixed remuneration to the conclusion of the liquidation, although making provision for a further application can be made. In short, in the absence of a further application, the remuneration would be as fixed by the last creditors meeting and, for that reason, it seems to me that the appropriate course is probably to act under s 504; but, alternatively s 511 is available (Re Lowrie Classic Homes Pty Ltd (in liq) 2013 NSWSC 719, [11]).
[1][2015] NSWSC 279.
His Honour then proceeded to make an order under s 504 and/ors 511(2) determining the remuneration of the liquidators.
In Re Westnet WA Infrastructure Holdings Limited,[2] Young AJA of the Supreme Court of New South Wales had before him an application under s 511 of the Corporations Act by a liquidator in a member's voluntary winding up. One of the questions his Honour had to consider in that case was what was the Court's power in a member's voluntary winding up to increase the liquidator's remuneration. He also considered what the significance was of the fact that the amount of the remuneration of the liquidator was approved when the liquidator was appointed. His Honour observed at [24]:
(1)The Court under s 511 has power to determine any question arising in the winding up of a company. In Re Walker (2005) NSWSC 557; 189 FLR 467, Barrett J considered that this sort of application came within s 511, though he cast doubt as to whether it came within s 511(1B). That was actually of no impediment as it comes within s 511(1A). So, in my view, I should follow that decision and hold that there is power to do what the liquidator wants.
(2)Normally when a person makes a contract he or she is bound by the contract. However, s 504 of the Corporations Act 2001 gives the Court power, on the application inter alia of a liquidator, to review that remuneration. Section 504(2) lists a series of factors which the Court may have regard to as to whether the remuneration is reasonable. That statutory power makes it clear that the Court can vary the liquidator's remuneration if the factors in sub-s (2) mandate it, notwithstanding that there is a contract.
[2][2015] NSWSC 658.
Mr Sutherland originally sought determination of his remuneration of $63,829.25 but at the hearing of this application on 16 February 2016 he increased that claim to $74,529.25.
The Court’s power to review the amount of remuneration of the liquidator of a co-operative is analogous to that found in s 504 of the Corporations Act in relation to liquidators appointed in voluntary windings up.
In my view, I do not consider that there is any doubt that there is power in the Court to increase the remuneration in a voluntary liquidation provided, as Young AJA points out, on an application of the criteria in s 504(2), it is appropriate. The source of such power is either s 504 or s 511 and can be exercised notwithstanding it has been fixed by resolution of the creditors or otherwise been agreed to.
Mr Sutherland relies on three affidavits sworn by him in support of his application dated 27 August 2015, 25 September 2015 and 27 November 2015.
On 27 August 2015 Mr Sutherland’s solicitors served a notice of intention to apply for review of remuneration dated 27 August 2015 and a copy of his first affidavit on the creditors of the Co-Operative. In September 2015, Mr Sutherland’s solicitors received notice from John Martin, one of the directors of the Co-Operative, Manish Gupta, on behalf of Riti Investments Pty Ltd (‘Riti’), and Dennis Ryan.
Mr Gupta, Mr Martin and Mr Ryan have filed jointly sworn affidavits dated 29 October 2015 and 16 December 2015 in opposition to the application.
At the hearing of this application, it was evident that there is considerable acrimony between Mr Martin and Mr Gupta on the one hand and Mr Sutherland on the other. The source of this would seem to be based on the contention by Mr Gupta and Mr Martin that Mr Sutherland had agreed to a certain amount for his remuneration prior to the Co-Operative going into administration and that he now resiles from that agreement. In their evidence filed with the court and in their oral submissions, they criticised Mr Sutherland for the manner in which he had carried out his duties as administrator and liquidator and in relation to decisions that he had made in the course of the liquidation. They concluded that the effect of Mr Sutherland’s conduct was to reduce considerably the amount of the dividend that the creditors would ultimately receive. Mr Gupta was also very critical of the approach taken by Mr Sutherland to the claim by Riti, the Co-Operative’s landlord, that it was a secured creditor of the Co-Operative in respect of the unpaid rent owing under the lease.
Mr Sutherland negotiated with Mr Gupta over a protracted period in respect of the issue of such security culminating in an agreement whereby Riti’s secured claim was reduced considerably, to the undoubted benefit of the unsecured creditors of the Co‑Operative. At the hearing of this application, I indicated to Mr Gupta and Mr Martin that the current application was one purely concerned with whether, on the exercise of the discretion vested in me in s 504, Mr Sutherland’s claim for remuneration was fair and reasonable on the evidence before me.
It is quite often the case that the relationship between insolvency practitioners and creditors can be quite fractious and this administration was a good example of that. The only relevance of the criticism of the conduct of Mr Sutherland is the impact on the exercise of the discretionary criteria mentioned in s 504(2) and I have considered those criticisms in that context only.
Background
On 28 August 2014, following his appointment as administrator, Mr Sutherland circulated to the creditors of the Co-Operative a report compiled by him as administrator pursuant to s 439A4(a) of the Corporations Act (which applies to the Co-Operative by operation of s 382 of the National Law). That report was compiled for the purpose of consideration by the creditors at the second meeting of creditors which was held on 8 September 2014. At that meeting the creditors resolved that the Co-Operative be wound up and that Mr Sutherland be appointed as liquidator. He has been liquidator of the Co-Operative since that time.
The creditors approved Mr Sutherland’s remuneration as administrator in the sum of $26,178 plus GST provided that he would not draw more than $17,800 plus GST unless the creditors were paid 100 cents in the dollar. Because Mr Sutherland estimated that creditors would receive a dividend of less than 100 cents in the dollar, his remuneration was limited to the lower figure plus GST, and he has drawn that amount.
To this time, Mr Sutherland has obtained approval from the Co-Operative’s creditors for, and has been paid remuneration in respect of the liquidation of $15,000 plus GST for work undertaken between 8 September 2014 and 6 October 2014. The remuneration for this period was the subject of his Remuneration Approval Request Report dated 28 August 2014 and approval for payment of that sum was obtained by resolution of the creditors on 8 September 2014.
On 29 May 2015 Mr Sutherland circulated to the creditors a notice of meeting which was to be held to receive an account of his acts and dealings as liquidator and the conduct of the winding up and to fix his further remuneration. He also provided the creditors with a report and a Remuneration Approval Request Report. For the period 20 October 2014 to 14 May 2015 Mr Sutherland recorded, on a time costing basis, work in progress in the liquidation totalling $45,828.55. However, he only sought approval from the creditors for reduced remuneration of $40,000 for that period. He sought $5,000 for the period 15 May 2015 until the completion of the liquidation.
On 16 June 2015 the meeting of creditors was held. Among the creditors participating in that meeting by telephone was Mr Martin and Mr Gupta (on behalf of Riti). The creditors failed to vote on either resolution and some of the creditors were opposed to any claim by Mr Sutherland for further remuneration. The Co-Operative did not appoint a committee of creditors from which he could seek approval of his remuneration.
On 24 June 2015, Mr Sutherland issued a circular to the creditors advising of his intention to apply to the Court to have his further remuneration approved. He indicated that this meant he would not be able to declare the dividend of approximately 43 cents in the dollar, which he had previously foreshadowed paying immediately after the meeting. He also stated that he would no longer be able to estimate when the dividend to creditors would be paid or the amount of that dividend and that the costs of the application for remuneration would likely erode the funds available to pay a dividend.
Mr Sutherland states that as of 13 July 2015, he and his partners and staff had performed work in progress in respect of the winding up of the Co-Operative totalling $63,829.25 plus GST. However, Mr Sutherland states he was prepared to reduce the remuneration he was seeking by $10,000, and therefore at that time sought the Court’s approval of his remuneration for the period up to 13 July 2015 in the sum of $53,829.25 plus GST. He also seeks the Court’s approval of his remuneration of $5,000 plus GST for work expected to be completed in the period 14 July 2015 up to the completion of the liquidation. He now also seeks $15,700 plus GST for work expected to be completed in connection with the application for remuneration. He states that the remuneration actually expected to be incurred in relation to the application or remuneration is $20,700 but he is prepared to forgo $5,000. The total of the remuneration now sought is $74,529.25 plus GST.
Mr Sutherland has exhibited to his first affidavit[3] an updated Remuneration Approval Request Report dated 29 July 2015 and a copy of his firm’s detailed Work in Progress Report for the period 7 October 2014 to 13 July 2015. It is convenient to consider those documents later in these reasons.
[3]Exhibit KLS-7 and KLS-8.
In his affidavit of 25 September 2015 Mr Sutherland responds to criticisms made of his conduct of the liquidation by Mr Gupta on behalf of Riti and Mr Ryan. He states that the correspondence received from them contains many unparticularised and unsubstantiated allegations which he denies. In summary he states as follows:
(a) The creditors were sent all documentation which is required to be provided to them pursuant to the Corporations Act 2001 (Cth) and the Code of Professional Practice for Insolvency Practitioners published by ARITA;[4]
[4]Australian Restructuring Insolvency and Turnaround Association.
(b) He states that no fixed fee agreements were agreed to with the creditors. In his Remuneration Report to creditors of 28 August 2014 he specifically advised creditors that the remuneration for which he was seeking approval was based on an estimate of the work necessary for the completion of the liquidation and that, should additional work be necessary beyond what he had contemplated, then he might seek approval for additional remuneration from creditors. He states that he also advised creditors at the meeting held on 8 September 2014 that if his fees exceeded the sum approved at that meeting he had the right to seek approval of further fees;
(c) He advised creditors prior to the meeting of creditors on 16 June 2015 that he would agree to reduce his claim for remuneration from $45,828.55 plus GST to $40,000 plus GST;
(d) During the course of liquidation Mr Martin corresponded with him extensively. He received 34 emails from him and he sent 44 emails together with other correspondence which was sent to creditors in relation to the progress of the administration. He states that all of Mr Martin’s emails seeking information were responded to promptly and he also spoke to him on the telephone on a number of occasions;
(e) He explained the role of the committee of inspection at the first meeting of creditors but no nominations to a committee were made at the meeting;
(f) In his Remuneration Report, which forms part of his first affidavit, he summarised the tasks which he believed would need to be completed in order to finalise the liquidation;
(g) He states that all minutes of meetings were accurately and properly prepared and lodged with the relevant government agency, the Department of Consumer Affairs, within the required timeframe. A copy of the minutes of the meeting held on 16 June 2015 was sent to Mr Martin at his request;
(h) He states that his circular to creditors on 28 August 2014 did not contain an estimate of how long he believed it would take to complete the liquidation of the Co-Operative, however, he had estimated the realisation of assets and the settlement of all proofs of debt would occur by June 2015. He notes that in particular it took some months for the Australian Taxation Office to finalise the proof of debt and for him to obtain a tax clearance from it pursuant to the provisions of the Taxation Administration Act 1953. As to this matter he notes as follows:
(i) Prior to his appointment as administrator, the Co-Operative had not lodged a large number of returns going back 10 years. He arranged for several of those returns to be prepared and lodged and was able to persuade the ATO to waive its requirement for lodgement of the balance of them. He exhibits documentation from the Australian Taxation Office recording the outstanding lodgement obligations of the Co‑Operative as at the date of his appointment as the administrator;
(ii) The ATO lodged five proofs of debt during the course of the liquidation. On each occasion the ATO lodged a revised proof of debt, it withdrew the one it had previously lodged;
(iii) An initial tax clearance provided to him by the ATO was withdrawn and the tax clearance upon which he now relies was not received by him until the day of the meeting of creditors on 16 July 2015;
(i) All of the Co-Operative staff were paid their outstanding entitlements, as and when, funds became available in the administration of the Co-Operative. Outstanding wages were paid in December 2014 following the sale of the plant and equipment and superannuation and other entitlements were paid following the settlement of the sale of the Co-Operative’s property in March 2015. Mr Ryan has been paid his entitlements in full. At the time of his appointment as administrator of the company, he completed a document in relation to his independence (known as a DIRRI[5] in accordance with the ARITA Code of Professional Conduct). He had not had any dealings with either the Co-Operative or any of its officers prior to his appointment as administrator;
(j) He concludes that there were no excessive professional expenses in the administration and liquidation. Mr Gupta was provided with a copy of a number of the invoices from external providers. He states that the only issue he had with any of the invoices was the one rendered by PMM Pty Ltd, the company which was retained to provide an occupational health and safety certificate on items of plant and equipment sold during the liquidation. It referred to an incorrect address at which the plant and equipment was located and this error was explained to Mr Gupta following which he contacted that company.
[5]Declaration of Independence, Relevant Relationships and Indemnities.
The evidence filed by the opponents to the application
In the affidavit of 29 October 2015 Messrs Gupta, Martin and Ryan depose that prior to his appointment, Mr Sutherland quoted a fixed cap fee of $30,000 to cover the cost of the administration and the liquidation. As I have already observed, it is within the Court’s power, if appropriate, to increase the liquidator’s remuneration. I note however, that Mr Sutherland denies that he quoted a fixed fee of that figure.
As regards to Mr Sutherland’s assertion of independence, they say that the circular to creditors mentioned that the job was referred to him by a firm of accountants, Wyndham Accounting, but it was not mentioned that that firm is a regular referral partner to Mr Sutherland’s firm and that they are also a creditor of the Co-Operative. Without more, nothing turns on this in my view. The affidavit then goes on to chronicle various events which occurred in the liquidation and makes criticisms of their interaction with Mr Sutherland. It is obvious that Mr Gupta is most unhappy with the agreement which was ultimately struck involving the amount and status of Riti’s debt. However, I see nothing in the material to indicate that it was anything other than a proper commercial negotiation in which Mr Sutherland, as was his responsibility, acted on behalf of all the unsecured creditors in coming to his decision in that regard. Ultimately Mr Sutherland accepted a proposal from Mr Gupta that Riti’s claim be treated as being secured as to $20,000 and $110,000 unsecured. By reason that the amount of the alleged secured debt had been reduced, that agreement was to the advantage of the general body of unsecured creditors.
The deponents state that the total of fees drawn by professionals at the date of the swearing of the affidavit was $84,914.43 comprised of:
(a) Bent & Cougle (Mr Sutherland’s firm) $36,563.84;
(b) Cleaning $2,500;
(c) OH&S $1,235.58;
(d) Kevin Hicks $23,435;[6] and
(e) Thomson Geer[7] $21,180.01.
Items (b) to (e) are disbursements incurred by Mr Sutherland mainly in respect of the sale of the Co-Operative’s property. Disbursements are not properly the subject of consideration in an application of this type.[8] However, liquidators are entitled to engage persons to achieve the best outcome for creditors in the liquidation including competent estate agents and solicitors as well as putting the subject property in the best possible condition for sale.
[6]Mr Hicks is apparently the agent engaged to sell the property at Drummond Road.
[7]Mr Sutherland’s solicitors.
[8]Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96, 100.
They assert that Mr Sutherland’s actions demonstrate his desire to run the liquidation in a way that there is nothing left for any creditors and that all the money would be consumed by various associate professionals. They state he has put his own interests ahead of creditors, has not been able to run the liquidation in the best interests of the creditors and that he should use reasonable care whilst spending the creditors’ money as if it is his own. It then details what they contend are various improper expenditures which I shall not detail here.
On my review of the affidavit, the criticisms which are made of Mr Sutherland are a classic illustration of the tension which is almost always present in an insolvency administration, particularly where a creditor such as Riti, through Mr Gupta, considers he has been unfairly treated. To my mind, on the evidence available, the activities for which Mr Sutherland is criticised are not obviously impeachable and not such as to affect my statutory discretion which I exercise in the context of this present application.
The criticisms culminate in alleged inaccuracies in the compilation of the minutes of meeting of creditors. The theme underlying those criticisms is the amount of the fees which Mr Sutherland estimated would be charged. As I have said, that is overtaken by the ability of the Court, if appropriate, to increase remuneration even where there has been a form of agreement in that regard.
The balance of the affidavit is given over to what are, in substance, submissions in regard to the application of the various discretionary criteria under s 504(2). It is convenient to consider those matters later in these reasons.
Relevant legal principles
I intend to adopt the statutory criteria which applies to these types of application in voluntary windings up of companies under the Corporations Act.
Section 504 of the Corporations Act provides relevantly:
(1)Any member or creditor, or the liquidator, may at any time before the deregistration of the company apply to the Court to review the amount of the remuneration of the liquidator, and the decision of the Court is final and conclusive.
(2)In exercising its powers under subsection (1), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work performed by the liquidator was reasonably necessary;
(b)the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;
(c)the period during which the work was, or is likely to be, performed by the liquidator;
(d)the quality of the work performed, or likely to be performed, by the liquidator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;
(f)the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
(i)whether the liquidator was, or is likely to be, required to deal with:
(i) one or more receivers; or
(ii) one or more receivers and managers;
(j)the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;
(k)if the remuneration is ascertained, in whole or in part, on a time basis:
(i)the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and
(ii)whether the total remuneration payable to the liquidator is capped;
(l) any other relevant matters.
The factors in sub-paragraphs (a), (b) and (c) of s 504(2) are each generally concerned with an assessment as to whether the work performed and described in the insolvency practitioner’s material was reasonably necessary and whether the time taken for their performance was reasonable. As to the matters mentioned in s 504(2)(d) the Court will consider whether the insolvency practitioners performance has met the requisite standard for the task being performed. As to s 504(2)(e)-(h) are concerned with very similar concepts and it is appropriate to consider them collectively.
In Thackray v Gunns PlantationsLtd,[9] Davies J, then of the Supreme Court of Victoria, summarised the principles to be applied in applications regarding insolvency practitioners’ remuneration by reference to the decision of the Full Court of the Western Australian Supreme Court in Venetian Nominees Pty Ltd v Conlan[10] as follows:
(a)A summary procedure is involved, not unlike that applicable to the taxation of solicitors’ 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 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.
[9](2011) 85 ACSR 144.
[10](1998) 20 WAR 96 (‘Venetian Nominees’).
At [63] and [64], her Honour stated:
…
Nevertheless, the receivers accepted that the principles set out [in] Venetian Nominees Pty Ltd 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.[11]
[11]Thackray (2011) 85 ACSR 144 (citations omitted).
In ASIC v Australian Foods Co Pty Ltd,[12] in an application for remuneration by a court appointed receiver and manager, the receiver/manager put forward a detailed statement of time, costs and disbursements (which he confirmed was true and correct) itemising the details of the work done, the identity of the persons who did the work, the grade of the person who did the work and the time taken for doing the work, and the rates charged. The annexures to the supporting affidavit provided considerable detail as to what was done. Master Sanderson stated at [16]:
There is nothing surprising in any of this material. Clearly, it is drawn from time sheets maintained by each of the individuals concerned. If necessary, those original time sheets could be called for, but in all probability they would add little to the information provided by the receiver. The way in which the receiver and his staff have recorded the time spent accords with standard commercial practice. The actions taken by each individual concerned are adequately, if cryptically, described. It is difficult to see what further information could have been provided.
[12][2005] WASC 110 (‘Australian Foods’).
Master Sanderson concluded that the information provided established prima facie that the work was done and the costs were reasonably incurred. His reservations were first, that the material did not provide a sense of what the receiver and his colleagues were attempting to achieve and the overall purpose behind those actions, and, secondly, the fact that such significant costs had been incurred in a relatively short space of time.
In Re ACN 004 323 184 Pty Ltd v Spark,[13] Dodds–Streeton J considered an application for remuneration under s473(3)(b) of the Act . In the affidavit in support of the application, the liquidator summarised the tasks performed by each staff member with that person’s charge rate, level or position, hourly rates and total hours worked, together with full descriptions of the work performed. At [43], her Honour stated:
I accept Mr Woodward’s submission that the material adduced by the respondent in this case satisfies the requirements of r 9.4(7) of the Corporations Rules. It also satisfies the basic principle of Venetian Nominees, in that there is sufficient information provided for the Court to determine that the amounts claimed are fair and reasonable . The material sets out the person performing the work, the grade or level of the relevant person , the task and dates, time spent on the task and the relevant rate according to the level of the person carrying out the task. It is undisputed that the work was carried out for the purpose of the winding up.
[13][2002] VSC 353, [43].
The liquidator must provide adequate evidentiary material to enable the Court to determine whether the amounts claimed are fair and reasonable:[14] The evidence should be presented as a:
Statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly … verified by affidavit.
[14]Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 103.
The document should be similar in form to a bill of costs in taxable form provided by a solicitor to his or her client.
In support of his application for remuneration, Mr Sutherland has exhibited to his affidavit sworn 27 August 2015, a Remuneration Approval Request Report dated 29 July 2015[15] and detailed fee schedules,[16] described as the WIP report for the period 7 October 2014 to 13 July 2015. The first of those documents, the Remuneration Request Approval Report summarises what tasks were performed in the various categories; these categories included assets, creditors, employees, investigations, dividend and administration. Of the amount for which remuneration is sought the following hours spent by Mr Sutherland and his staff and the fees claimed for that particular task are as follows:
[15]Exhibit KLS-7.
[16]Exhibit KLS-8.
Time spent
Fees claimed
Assets
25 hours
$10,961
Creditors
69.70 hours
$21,332.40
Employees
12 hours
$4,343.20
Investigations
11.3 hours
$3,413.60
Dividends
32 hours
$10,583.40
Administration
51.35 hours
$13,952.95
The table breaks those tasks up into sub-categories and provides a narration in summary form of the individual tasks within that category. Included in the report is a spreadsheet identifying the various persons who worked on the liquidation for the period from 7 October 2014 to 13 July 2015, in descending order of rank in the hierarchy of Mr Sutherland’s firm. It breaks up the task performed by each individual. Mr Sutherland was occupied in 60 hours of work, a manager 57 hours and an intermediate employee 41 hours. A total of 201 hours was spent during the period mentioned. As such, the liquidation is somewhat ‘top heavy’ in terms of Mr Sutherland’s involvement, but when one comes to consider the narrative and the interaction with various creditors, this would seem to be justified.
The table also notes the charge out rate for the individual persons who worked in the liquidation. Those charge out rates are, in my view, reasonable having regard to the Victorian ‘market’ for insolvency practitioners. The source of my comparison is the numerous consents to act as liquidator that I see in applications in the Corporations List in this Court. As such, the scale of the amounts being charged are fair and reasonable.
In the period for which remuneration is sought, Mr Sutherland received $548,946.82. He made payments to various parties, including the first mortgagee, out of such receipts of $406,018.10. The first mortgagee was paid $195,725. The remainder of the expenditure was in respect of the usual expenses one would expect, such as auctioneer’s charges, council and water rates, electricity and the like.
Dr Bigos submits that upon review of the Work in Progress Report,[17] it can be seen that Mr Sutherland undertook the usual range of tasks expected in the running of this type of liquidation.[18] It is said that he did not perform any tasks which were ‘obviously unnecessary to be performed or for which the time engaged appears to be unreasonable’.[19] Indeed it is submitted that Mr Sutherland may well have been criticised for not performing such tasks.
[17]Exhibit KLS-8 to the first affidavit.
[18]Ibid.
[19]Andrew William Poulter in his capacity as liquidator of Haulton Construction Services Pty Ltd (In Liquidation) vHaultonConstruction Service Pty Ltd (In Liquidation) [2013] VSC 366, Unreported, at [42].
In addition, Dr Bigos submits that the narrations reveal that the items were carried out by people having an appropriate level of experience for those tasks. The first page to the exhibit identifies each member of Mr Sutherland’s staff who were engaged on work in the liquidation. As I have already noted, of a total of approximately 200 hours of work spent on the liquidation, Mr Sutherland was occupied for 60 hours. Lower level employees, who are described as ‘intermediates’ in the hierarchy of the firm, worked approximately 60 hours and a manager also carried out approximately 60 hours’ work.
The Work in Progress Report provides the time recorded in respect of each individual item or task performed for which remuneration is sought. I have randomly selected approximately 50 items where the charge is in excess of $100 and examined it to ascertain if the charge and time spent for that task appears to be fair and reasonable.
Mr Sutherland is a Melbourne based liquidator and the assets the subject of the liquidation are located in Shepparton. He travelled to Shepparton on 12 December 2014 to attend at the auction. That travel time occupied four hours at his charge out rate. That figure seems high but I think as liquidator it was necessary for Mr Sutherland to attend at the auction. None of the other entries that I have chosen at random are remarkable and are what one would expect to be appearing as part of the tasks performed by the liquidator. As such, at this point, I observe that the amount sought for remuneration for the tasks identified in the documents to which I have referred appear on their face to me to be prima facie reasonable.
I consider that the amount claimed for remuneration until the conclusion of the liquidation, $5,000, is fair and reasonable. I also consider that the amount claimed for remuneration incurred in connection with this application to be fair and reasonable. The opposition to the application has resulted in considerable additional work for which I consider Mr Sutherland should be awarded remuneration.
I agree with the submission of Dr Bigos that the fee schedules satisfy the evidentiary requirements in order for the Court to establish prima facie, the reasonableness of the remuneration claimed.
In my view the material contained within that exhibit meets the requisite standard described in Venetian Nominees. Mr Sutherland and his staff performed the following work during the liquidation:
(a) selling the property owned by the Co-Operative located at 89 Drummond Road, Shepparton. This included corresponding with the first mortgagee for approximately three months in relation to obtaining a payout figure, negotiating with the second mortgagee as to the extent of its claim, dealing with the tenant, arranging an auction of equipment left on the property, arranging insurance and electricity supply, instructing the agent in relation to cleaning the property, instructing lawyers in relation to the sale, attending the auction, liaising with the agent and lawyers after the auction, corresponding with the ANZ Bank in relation to its registered security interest and attending to settlement;
(b) negotiating with the Co-Operative’s former landlord, Riti. Riti claimed that it was owed $333,650 secured by a mortgage. Following a lengthy negotiation over the course of two months, Riti agreed to settle its claim on the basis of a secured claim limited to $20,000 and an unsecured claim limited to $110,000;
(c) attending to Riti’s request for information in relation to numerous aspects of the liquidation of the Co-Operative, which comprised approximately 62 emails received, 53 emails sent, and eight letters sent;
(d) adjudicating on proofs of debt of five employees (including three related parties) and the ATO's priority claim for the superannuation guarantee charge;
(e) obtaining clearance from the ATO, which included nine letters and numerous phone calls, instructing the Co-Operative's former accountant in relation to the preparation of a fringe benefits tax return, and dealing with requests from the ATO in relation to 13 outstanding lodgements dating back to 2001;
(f) reporting to creditors;
(g) paying a dividend of 100 cents in the dollar to employees.[20]
[20]Paragraph 27 of the first affidavit.
The evidence filed by Mr Sutherland reveals the following in the context of the various discretionary factors in s 504(2):
(a) the work performed by the liquidator was reasonably necessary: s 504(2)(a). In my view, each of the items of work mentioned was necessary in the course of Mr Sutherland's duties as liquidator and, in the case of the sale of the property in Shepparton and the negotiation of Riti’s alleged secured claim against the Co-Operative (which were in terms of fees recorded the most significant tasks undertaken), resulted in a significant benefit to creditors. The objectors say that the liquidation was not unusually complex, did not present any extraordinary issues, did not require Mr Sutherland to accept an unusually high level of risk or responsibility and he was not required to deal with receivers and managers. They do not, to my mind, establish that the work performed by Mr Sutherland was not reasonably necessary. While it was not what would be described as a ‘high level’ liquidation, it did involve the exercise of a medium level of commercial judgment and responsibility.
(b) the work likely to be performed by the liquidator is likely to be reasonably necessary: s 504(2)(b). The work still required to complete the liquidation involves liaising with, and dealing with the claims of, the creditors of the Co‑Operative, calculating and paying a dividend to creditors, and administration, including in relation to the finalisation of the liquidation. These are all standard, but necessary tasks that must be completed in the liquidation. In addition, in relation to the application for remuneration, Mr Sutherland has had to provide information and documents and ongoing instructions to his solicitors; review and provide comments in relation to draft documents, including affidavits; and additional work was required leading up to and in relation to the hearing, (as indeed it was). In their affidavit the objectors assert what I consider to be irrelevant matters in the context of this factor. They complain that:
On numerous occasions creditors attempted to gain mediation, resolve and negotiate halfway for a win/win solution for both liquidator and creditors but Mr Sutherland was not willing to negotiate.
(c) the period for which remuneration is claimed: s 504(2)(c). Mr Sutherland's claim for remuneration is for the period 7 October 2014 to 13 July 2015 (around nine months), plus further remuneration for the period up to the completion of the liquidation which he anticipates will be shortly after the determination of this application. The objectors complain that no dividend payout is yet to be achieved which is not a relevant consideration for this factor.
(d) the quality of the work performed, or likely to be performed, by the liquidator: s 504(2)(d). There is no evidence to suggest that the quality of work performed by the liquidator did not meet requisite standards. I say this despite the criticisms made of Mr Sutherland by those who oppose his application. In fact, Mr Sutherland ran quite a successful liquidation, with all employee entitlements being paid out, and the substantial reduction of the claim of the former landlord as a secured and unsecured creditor achieving a higher return for ordinary unsecured creditors without resort to litigation. Further, in June 2015, Mr Sutherland was in a position to pay a dividend of 43 cents in the dollar to unsecured creditors of the Co-Operative.[21] This to my mind is an indication of a reasonably successful liquidation from the creditors’ point of view. The position has unfortunately deteriorated since then. The objectors contend that the quality of work performed by Mr Sutherland has been ‘extremely poor’. They say that ‘unreasonable time has been spent on simple tasks’ and ‘tactics were used to complicate the matter to drag it longer’. They say that the availability and accuracy of minutes were below professional standards and non-confirmation of such minutes resulted in stress, delays and further claims of cost. I do not consider that this criticism of Mr Sutherland is justified. Lay persons may not appreciate that in insolvency administrations, the wheels grind slowly on occasion, but I see no basis for their criticisms in this instance.
[21]Paragraph 69 of the third affidavit.
(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 504(2)(e) and (f). On my review of the evidence, the winding up here was of average complexity. Dr Bigos contends that one extraordinary issue which Mr Sutherland was involved in in the liquidation, was the extensive negotiations with Riti in relation to its secured claim. Riti was the Co-Operative’s former landlord. It claimed $333,650 secured by a mortgage.[22] If that claim had been accepted, it would have resulted in no return to unsecured creditors, but following a lengthy negotiation over the course of two months, Riti agreed to settle its claim on the basis of a secured claim limited to $20,000 and an unsecured claim limited to $110,000.[23] The liquidator also had to attend to Riti’s requests for information in relation to numerous aspects of the liquidation of the Co‑Operative, which comprised approximately 62 emails received, 53 emails sent, and eight letters sent.[24] Further, the liquidator received 34 emails from Mr Martin and sent Mr Martin 44 emails.[25] The liquidator's extensive interactions with Riti and Mr Martin could be described to my mind as somewhat out of the ordinary. Mr Gupta apparently raised many questions and challenged Mr Sutherland’s actions on a number of occasions. It was an unremarkable but not run of the mill insolvency administration. The objectors contend that the administration and liquidation in this instance was ‘very small, simple and straightforward’ and that legal advice and negotiation with one or more secured creditors is not abnormal rather it is expected in the normal course of liquidations. Mr Martin liaised with the relevant government department to obtain a release of the first mortgage and also assisted Riti to find a replacement tenant. It is said that the Co-Operative’s books, both electronic and hard copies, were up to date, available and legible.
[22]Paragraph 20 of the Martin, Gupta, Ryan affidavit.
[23]Paragraph 27(b) of the first affidavit.
[24]Paragraph 27(c) of the first affidavit.
[25]Paragraph 6(d) of the second affidavit.
(f) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator: s 504(2)(h). The most significant item of property dealt with in the liquidation was the property at 89 Drummond Rd, Shepparton, which was sold after an unsuccessful auction for $425,000 plus GST in late December 2014. The objectors state that the property was valued at $600,000 for the Co‑Operative when it went into administration. This was not the premises from which the Co-operative operated. They criticised the conduct of the liquidator’s agent Mr Hicks. They state that his marketing campaign was non-existent, resulting in only 2 people attending the auction. At the end of the day, the property was publicly auctioned by a licensed real estate agent after such auction had been advertised.
(g) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors: s 504(2)(j). The Co-Operative has two secured creditors. The director's report as to affairs disclosed 38 unsecured creditors.[26] As has been mentioned, the liquidator and his staff were required to spend an extensive amount of time negotiating with Riti in respect of its secured claim, and also in dealing with the many and varied requests that were received from Riti, both in relation to its claim and in relation to the liquidation generally.[27] The liquidator's actions were also being continually questioned and challenged by Mr Gupta. The objectors assert the behaviour of creditors was very supportive and they always made themselves available for creditors meetings, considered and acted on all resolutions and communicated in a timely and respectful manner at all times via email, phone or in person. As against this they say that the behaviour of Mr Sutherland was very poor and well below expected professional standards. Putting it neutrally there is no doubt that relations between the creditors and the liquidator was disharmonious and fractious.
(h) the time properly taken, or likely to be properly taken, by the liquidator in performing the work: s 504(2)(k)(i). As I have already mentioned in paragraphs 49 to 51, I consider that the time taken to perform the necessary tasks in the liquidation was appropriate and reasonable.
(i) any other relevant matters: s 504(2)(l): Dr Bigos contends that it appears that the motive of Messrs Martin, Gupta and Ryan in objecting to Mr Sutherland’s remuneration application is to achieve the ulterior aim of negotiating with him a higher dividend.[28] I do not think that contention could be made out. As I have already said, it is often the case that there is a significant tension between the creditors and insolvency practitioners. Here the relationship appears to be quite fractious but I do not see how the making of objections would result in a higher dividend to them individually as any distribution would be pari passu amongst the general body of unsecured creditors. As I have said I have reviewed the spreadsheet material referred to above and the tasks performed were properly undertaken, and appear to have been performed within a reasonable period of time by a person with appropriate experience in Mr Sutherland’s firm. The objectors contended that the time taken has been extraordinarily long far exceeding the expectations of creditors but I do not agree with that submission on the evidence available to me.
[26]Paragraph 29(j) of the first affidavit.
[27]Paragraph 29(j) of the first affidavit.
[28]Paragraph 78 of the third affidavit.
I consider that having regard to the foregoing, Mr Sutherland’s remuneration for the liquidation of the cooperative be fixed in the following sums:
(a) $53,829.25 plus GST for the period 7 October 2014 to 13 July 2015;
(b) $5,000 plus GST for the period from 13 July 2015 to the completion of the liquidation;
(c) $15,700.80 plus GST for his remuneration in connection with this application.
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