Re Nissand Pty Ltd (in liq)
[2019] VSC 280
•10 May 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 02742
IN THE MATTER of NISSAND PTY LTD (IN LIQUIDATION) (ACN 119 909 705)
| ANDREW REGINALD YEO and DAVID RAJ VASUDEVAN in their capacity as the former liquidators of NISSAND PTY LTD (IN LIQUIDATION) (ACN 119 909 705) | Plaintiffs |
| v | |
| NISSAND PTY LTD (IN LIQUIDATION) (ACN 119 909 705) | Defendant |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 January 2019 (final submissions received 21 February 2019) |
DATE OF JUDGMENT: | 10 May 2019 |
CASE MAY BE CITED AS: | Re Nissand Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 280 |
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CORPORATIONS – External administration – Application by former liquidators for remuneration – Prima facie case for remuneration established – Quantum of remuneration –IMO Traditional Values Management Limited (in liq) [2012] VSC 650 (14 December 2012) – Thackray v Gunns Plantations (2011) 85 ACSR 144 – Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 – Corporations Act 2001 (Vic), s 473.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | P. Fary | Frenkel Partners |
| For the Defendant | S. McColl, solicitor | Aitken Partners |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Background......................................................................................................................................... 2
The Company................................................................................................................................ 2
Previous attempts by the Former Liquidators to obtain creditor approval for their remuneration 3
Notification of the intention to make the Application............................................................ 4
Procedural history of the Application....................................................................................... 5
Applicable principles........................................................................................................................ 5
Statutory provisions..................................................................................................................... 6
The Court’s approach................................................................................................................... 7
Former Liquidators’ Evidence........................................................................................................ 10
Work performed by the Former Liquidators and their staff................................................ 10
Transition of Company operations to new service provider...................................... 10
Employee entitlements..................................................................................................... 11
Debtor identification and recovery................................................................................. 14
Other liquidation tasks..................................................................................................... 15
Funds currently held.................................................................................................................. 16
The Former Liquidators’ rates and method for calculating remuneration........................ 16
Objections to the remuneration claimed and the Former Liquidators’ responses........... 17
Former Liquidators’ remuneration for the work performed in connection with the Remuneration Application......................................................................................................................... 21
Former Liquidators’ costs and expenses incurred in connection with the Remuneration Application.............................................................................................................................................. 21
Submissions...................................................................................................................................... 22
Submissions of the Former Liquidators.................................................................................. 22
Submissions of the Current Liquidator................................................................................... 23
Consideration.................................................................................................................................... 24
Former Liquidators’ prima facie case for approval............................................................... 24
Objection – no indication of write-offs.................................................................................... 25
Current Liquidator’s Submission.................................................................................... 25
Former Liquidators’ Response........................................................................................ 25
Analysis............................................................................................................................... 25
Objection – too many staff engaged on the file...................................................................... 26
Current Liquidator’s Submission.................................................................................... 26
Former Liquidators’ Response........................................................................................ 26
Analysis............................................................................................................................... 27
Objection – some work performed by Mr Thomson should have been performed by more junior staff.............................................................................................................................................. 28
Current Liquidator’s Submission.................................................................................... 28
Former Liquidators’ Response........................................................................................ 29
Analysis............................................................................................................................... 31
Objection – no need to review preference and voidable transactions reviews................. 32
Current Liquidator’s Submission.................................................................................... 32
Former Liquidators’ Response........................................................................................ 32
Analysis............................................................................................................................... 32
Objection – legal costs incurred for the Applications are unreasonable............................ 33
Current Liquidator’s Submission.................................................................................... 33
Former Liquidators’ Response........................................................................................ 33
Analysis............................................................................................................................... 34
Objection – amount of remuneration to be approved should be lower than that claimed 35
Current Liquidator’s Submission.................................................................................... 35
Former Liquidators’ Response........................................................................................ 36
Analysis............................................................................................................................... 36
Amount of remuneration to be approved............................................................................... 36
Former Liquidators’ remuneration for work performed in the liquidation of the Company 36
Former Liquidators’ remuneration for work performed in connection with the Remuneration Application............................................................................................................. 38
Legal costs and other expenses incurred in connection with the Remuneration Application 42
Conclusion......................................................................................................................................... 42
JUDICIAL REGISTRAR:
Introduction
The plaintiffs, Andrew Reginald Yeo and David Raj Vasudevan, are the former liquidators (‘Former Liquidators’) of Nissand Pty Ltd (‘Company’). Mr Yeo is a partner of Pitcher Partners and a registered trustee in bankruptcy and a registered liquidator.[1] Mr Vasudevan is a consultant of Pitcher Partners and a registered liquidator.[2]
[1]Yeo Affidavit, [1].
[2]Vasudevan Affidavit, [1].
By originating process filed on 13 December 2018, they seek approval of their remuneration as the former liquidators of the Company for the period 7 June 2016 to 24 June 2016 (‘Period’) in the sum of $131,508.30 (inclusive of GST) and an order that their costs of this application are costs in the winding up of the Company (‘Remuneration Application’).
In addition, the Former Liquidators seek approval for their remuneration and expenses in the making of the Application (‘Costs of Application’) (with the Remuneration Application, the ‘Applications’):
(a) $50,022.50 (inclusive of GST) in remuneration;
(b) $2,575.30 (inclusive of GST) in out of pocket expenses already paid by them (Frenkel Partners’ disbursements and filing fees). Frenkel Partners are the solicitors for the Former Liquidators;
(c) Out of pocket expenses of $56,781 (inclusive of GST) for Frenkel Partners’ fees to date of $49,379, Counsel’s fees to date of $7,250 (inclusive of GST), and Frenkel Partners’ disbursements of $152.57 (inclusive of GST); and
(d) Estimated further expenses of at least $8,000 (inclusive of GST) to finalise this matter, being Frenkel Partners’ fees of $3,000 and Counsel’s fees of $5,000 (both inclusive of GST).
The Former Liquidators rely on the following affidavits in support of the Applications:
(a) Mr Yeo, sworn 8 May 2018 (‘Yeo Affidavit’);
(b) Rose Mary O’Loughlin, sworn 31 May 2018 (‘O’Loughlin Affidavit’);[3]
[3]Concerning service on creditors and shareholders.
(c) Payten Tanal Martin, sworn 2 October 2018 (‘Martin Affidavit’);[4]
[4]Concerning service on a creditor.
(d) Claudia Baskett, sworn 13 December 2018 (‘First Baskett Affidavit’);[5]
[5]Concerning communications with creditors, shareholders and the Current Liquidator.
(e) Mr Vasudevan, sworn 13 December 2018 (‘Vasudevan Affidavit’);
(f) Nicole Jane Dawson, sworn 17 December 2018 (‘Dawson Affidavit’);[6] and
(g) Ms Baskett, sworn 17 January 2019 (‘Second Baskett Affidavit’).[7]
[6]Concerning service on the Department of Education, the Current Liquidator, and others.
[7]Concerning the costs and remuneration of the Former Liquidators relating to the Application.
The Former Liquidators were appointed as liquidators of the Company on 7 June 2016, by resolution of the Company’s directors.[8] At the first meeting of creditors on 24 June 2016, creditors resolved to replace them with Richard Rohrt (‘Current Liquidator’).[9]
[8]Yeo Affidavit, [10].
[9]Yeo Affidavit, [12].
As I will explain in more detail below, some of the creditors and the Current Liquidator have objected to the Applications.
Background
The Company
Prior to its liquidation, the Company (having been incorporated on 26 May 2006) managed and provided disability services to residents of six residential premises located at Mornington, Bonbeach, Cheltenham, Mentone, Narre Warren and Glen Waverley (‘Premises’). The Company employed 74 staff across all the Premises. Its assets comprised, in the main, cash at bank of $19,672.97 and debtors totalling $624,644.42. The Company also owned various plant and equipment, comprising miscellaneous items like garden sheds, domestic appliances, filing cabinets and the like.[10]
[10]Yeo Affidavit, [13].
Mr Yeo says that he was informed by the Company’s directors at the time of the appointment of he and Mr Vasudevan that prior to that appointment:[11]
[11]Yeo Affidavit, [14].
(a) The Company’s service agreements with the Department of Health and Human Services (‘DHHS’) and the Transport Accident Commission (‘TAC’) had been terminated and its funding had been withdrawn;
(b) The DHHS and TAC terminated the agreements after a patient made an anonymous complaint against Company staff and a number of breaches had been identified relating to the maintenance of records, reporting of incidents, implementing and recording of formal supervision, and updating Company policies to reflect Departmental requirements;
(c) The directors of the Company arranged for it to cease its operations as a result, and on 27 May 2016 issued notices terminating its employees’ contracts; and
(d) The DHHS engaged a new service provider, Oncall Personnel & Management Pty Ltd (‘Oncall’) to resume services at all but the Mornington premises, whose operations were assumed by the landlord of those premises with funding from the TAC.
Previous attempts by the Former Liquidators to obtain creditor approval for their remuneration
The Former Liquidators previously sought approval for their remuneration as follows:
(a) From the committee of inspection (‘COI’) at a meeting held on 26 April 2017 and reconvened on 10 May 2017; and
(b) The Company’s general body of creditors, at the Company’s annual general meeting of creditors and members held on 21 August 2017.[12]
[12]Yeo Affidavit, [5].
The resolutions for the Former Liquidators’ remuneration failed to pass on those occasions.[13]
[13]Yeo Affidavit, [6].
The Former Liquidators had prepared a remuneration report and disbursements schedule dated 13 July 2016 (‘Remuneration Report’)[14] which was provided to creditors ahead of the meetings referred to above.[15] The remuneration referred to in the Remuneration Report is that sought here in the Remuneration Application.[16]
[14]Exhibit ARY-3 to the Yeo Affidavit contains a copy of the Remuneration Report.
[15]Yeo Affidavit, [7].
[16]The amount claimed in the Remuneration Report is $119,553, excluding GST. The GST-inclusive figure is $131,508.30, which is the amount claimed in the Remuneration Application.
Notification of the intention to make the Application
On 8 May 2018, the Former Liquidators sent the following documents to certain creditors and shareholders:[17]
[17]Vasudevan Affidavit, [4]; O’Loughlin Affidavit, [2]-[5]; Martin Affidavit [2].
(a) A covering letter from Frenkel Partners dated 8 May 2018;
(b) A Form 16 notice of intention to apply to the Court for remuneration; and
(c) The Yeo Affidavit
(together, ‘Notification Documents’).
The persons to whom the Notification Documents were sent were those required by the operation of r 9.2(2) of the Supreme Court (Corporations) Rules 2013 (‘Rules’).[18] Relevantly, these persons are those creditors who were present, in person or by proxy, at a meeting of creditors, each member of the COI, and Rodney Nissen and Andrew John Tsindos (being members of the Company whose shareholding represents at least 10% of the issued capital of the Company). Mr Nissen and Mr Tsindos were also directors of the Company. When the Former Liquidators or their solicitors learned that some addresses used were no longer correct, the Notification Documents were re-served.[19] One member of the COI was inadvertently omitted from the original round of service, and the Notification Documents (along with an updated cover letter) were served on him on 27 September 2018.[20]
[18]Vasudevan Affidavit, [5], [17]-[18].
[19]Vasudevan Affidavit, [8]-[10].
[20]Vasudevan Affidavit, [12]; Martin Affidavit.
Objections to the foreshadowed remuneration application were received from various creditors, one of the Company’s directors, and the Current Liquidator.[21]
[21]Vasudevan Affidavit, [16].
In accordance with r9.2(5) of the Rules, once filed this proceeding was served on 13 December 2018 on objecting creditors and shareholders, and on the Current Liquidator.[22]
[22]Dawson Affidavit; Second Baskett Affidavit, [3]-[7].
Procedural history of the Application
The proceeding was listed for hearing on 18 January 2019 before Associate Justice Gardner. Both the Former and the Current Liquidators were represented on that day. Orders were made referring the Applications to me for determination in Chambers and on the papers on a date not before 25 February 2019; for the Current Liquidator to file and serve any submissions by 15 February 2019;[23] and for the Former Liquidators to file any submissions in reply by 22 February 2019.[24] Counsel for the Former Liquidators had already filed submissions in support of the Applications.[25]
[23]Filed on 15 February 2019 (‘Current Liquidator’s Submissions’).
[24]Filed on 21 February 2019 (‘Former Liquidators’ Reply Submissions’).
[25]Referred to herein as the Former Liquidators’ Submissions.
Applicable principles
There was no disagreement between the parties participating in the Applications as to the applicable principles to be applied.
Statutory provisions
This application is made under s 473(3)(b) of the Act. That section provides:
(3)A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a)if there is a committee of inspection – by agreement between the liquidator and the committee of inspection; or
(b)if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i) by resolution of the creditors; or
(ii) if no such resolution is passed – by the Court.
In exercising the power to determine the Former Liquidators’ remuneration, s 473(10) of the Act prescribes the matters which the Court must take into account when exercising that power:
(10)In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work performed by the liquidator was reasonably necessary;
(b)the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;
(c)the period during which the work was, or is likely to be, performed by the liquidator;
(d)the quality of the work performed, or likely to be performed, by the liquidator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;
(f)the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
(i)whether the liquidator was, or is likely to be, required to deal with:
(i) one or more receivers; or
(ii) one or more receivers and managers;
(j)the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;
(k)if the remuneration is ascertained, in whole or in part, on a time basis:
(i)the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and
(ii)whether the total remuneration payable to the liquidator is capped;
(i) any other relevant matters.
While the criteria in s 473(10) of the Act direct the Court to the factors that are to be taken into account, the ultimate question is whether the remuneration claimed by the Former Liquidators is reasonable.
For completeness, I note that while s 473 of the Act as it was has been repealed, it continues to apply in certain circumstances. In this case, s 473 of the Act applies, rather than the new provisions contained in division 60 of the Insolvency Practice Schedule (Schedule 2 to the Act).[26]
[26]For an explanation of the transitional provisions and the continued operation of s 473(3) of the Act, see Re Tuscan Property Development Pty Ltd [2018] VSC 511, [22]. As the Former Liquidators were appointed before 1 September 2017, the old provisions apply.
The Court’s approach
The principles concerning applications for approval of the remuneration incurred by insolvency practitioners are well established and have been referred to in many decisions of this Court. Gardiner AsJ summarised the relevant principles in IMO Traditional Values Management Limited (in liq)[27] (‘Traditional Values’) at paragraphs [18] to [25].
[27][2012] VSC 650 (14 December 2012).
For convenience I adopt his Honour’s summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[28]
[28](2011) 85 ACSR 144 (‘Thackray’).
At [60], her Honour summarised the principles to be applied by reference to the decision of the Full Court of the West Australian Supreme Court in Venetian Nominees v Conlan as follows:
(a)A summary procedure was involved, not unlike that applicable to the taxation of solicitor’s costs, which is not necessarily subject to all the rules that would apply in an action.
(b)The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment ‘bringing an independent mind to bear on the relevant issues’ even though at that point there is no objector.
(c)There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.
(d)If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made.
(e)If there are objectors to the claim or any part, the Court should then establish the validity of those objections.
At [63] and [64] of Thackray, her Honour stated:
…. the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers. The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work and justification of the hours spent. That amount can then be adjusted up or down to reflect other factors including:
(a) complexity above the norm for the kind of work involved;
(b) novelty and difficulty of the issues faced;
(c) the ultimate outcome obtained by the claimant.
The Court is looking for evidence of overcharging. Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided. But there is no universal approach applicable in all circumstances by which the “reasonableness” of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[29]
[29]Traditional Values, [20], citing Thackray (2011) 85 ACSR 144, [60], [63]–[64] (citations omitted).
Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited.[30]In addition to the matters referred to above, his Honour stated the following propositions:
[T]he Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred[31].
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.[32]
[30][2017] NSWSC 668 (‘Sakr’).
[31]Sakr, [23].
[32]Sakr, [23].
His Honour also canvassed a number of authorities regarding the method for calculating the remuneration, such as time costing or remuneration based on a percentage of realisations, concluding that:[33]
Most decisions … have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the costs of the work done and the value of the services provided.
[33]Sakr, [24].
On this point, his Honour concluded by referring to the New South Wales Court of Appeal decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr[34] which he said did not prefer any particular approach over another. Black J then stated:
Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; and, in part, the view taken by the Court.[35]
[34][2017] NSWCA 38 (‘Sanderson’).
[35]Sakr, [25].
Former Liquidators’ Evidence
Work performed by the Former Liquidators and their staff
Mr Yeo deposes that immediately upon the appointment of the Former Liquidators, members of his staff attended to a range of tasks, including:[36]
[36]Yeo Affidavit, [11].
(a) Identifying and dealing with the Company’s assets;
(b) Verifying and dealing with employee claims; and
(c) Attending to the transition of the Company’s operations to a new service provider and the orderly winding down of the Company’s affairs.
Mr Yeo says that a number of matters had to be resolved within a very short period of time and before the first meeting of creditors needed to be convened. Mr Yeo deposes that all of the work done for which remuneration is sought was reasonably necessary or required to be done as part of the liquidation.[37]
[37]Yeo Affidavit, [11].
Mr Yeo then goes into more detail as to the work performed by Pitcher Partners staff, divided into categories as set out below. For completeness, I note that Mr Vasudevan also describes the work performed by the Former Liquidators in considerable detail, primarily when he is addressing the objections raised to the remuneration claimed.[38]
[38]Vasudevan Affidavit, [48(a)-(e)].
Transition of Company operations to new service provider
Pitcher Partners’ staff attended all of the Premises and met with representatives of Oncall, house managers and employees to field all queries regarding the liquidation and change in management, to ensure a smooth transition to the new service provider and to ensure that all stakeholders’ concerns were addressed expeditiously, appropriately and with minimal disruption to the residents of the Premises.[39]
[39]Yeo Affidavit, [15].
Mr Yeo says that these tasks were time intensive, with 2 members of his staff separately attending each of the six Premises to identify assets, collate asset lists for the purpose of their valuation and locate debtor records and Company data.[40]
[40]Yeo Affidavit, [15].
Mr Yeo deposes that the remuneration claimed for this work was reasonably necessary or required to be done to ensure the smooth transition of business operations to Oncall.[41]
[41]Yeo Affidavit, [15].
Employee entitlements
Mr Yeo deposes that immediately upon their appointment, the Former Liquidators were required to address the entitlements and concerns of the Company’s former and transitioning employees, which continued beyond the Period into the handover period to the Current Liquidator between 25 June 2016 and 11 August 2016 (‘Handover Period’).[42]
[42]Yeo Affidavit, [16], [19].
Pitcher Partners’ staff:[43]
[43]Yeo Affidavit, [16].
(a) made immediate enquiries of the Company’s directors, landlords and Oncall to identify and secure assets at the Bonbeach, Cheltenham, Mentone, Narre Warren and Glen Waverley premises;
(b) participated in numerous telephone conferences with the DHHS, TAC, Oncall and employees;
(c) attended onsite meetings at each of the Premises with house managers and Oncall representatives to locate assets and make transitional arrangements;
(d) attended each of the Premises to collect the Company’s books and records, which were extensive, located in different parts at the six separate Premises, and which included computer and hard copy records;
(e) communicated with employee claimants regarding their individual concerns, claims and circumstances;
(f) reviewed books and records and documentation supplied by claimants, to assess their employee entitlement claims and legal standing;
(g) prepared and circulated notices to employees to convene an informal meeting for them so as to update them on the progress of the liquidation and inform them of their rights;
(h) held the informal meeting referred to in the previous paragraph on 9 June 2016 for the purposes stated, and also supplied attendees with Centrelink separation certificates, pay slips and estimated payout figures;
(i) reconciled, calculated and assessed employees’ individual entitlement claims, including seeking legal advice and making enquiries with the Company’s former bookkeeper;
(j) supplied information to employees on a case by case basis, to enable them to lodge claims with the Federal Government Fair Entitlements Guarantee (‘FEG’) scheme;
(k) liaised with FEG to verify calculations;
(l) liaised with Oncall regarding the queries of former and transitioning employees; and
(m)addressed queries from employees transitioning to Oncall and former employees.
Mr Yeo says that the greatest portion of the remuneration claimed was incurred in respect of these tasks because:[44]
[44]Yeo Affidavit, [17].
(a) employee entitlements needed to be identified, resolved and communicated within a very short time and prior to the first meeting of creditors;
(b) employee queries had to be addressed efficiently so as to ensure a smooth transition to Oncall;
(c) there was a high degree of misinformation and emotion associated with the employees’ queries, which had to be addressed and which required a significant commitment of time and resources. In relation to this, Mr Yeo says that:
a higher than usual degree of correspondence regarding the rights and status of employee entitlements had to be addressed in this liquidation due to, in my opinion, the conduct of a number of vocal employee representatives who held informal meetings in and around our premises during the Period, which generated a high degree of confusion and misinformation which we were required to address and remedy which otherwise would not normally arise in a standard liquidation
(d) due to the volume of employees, the number of Premises and the circumstances of the appointment, Pitcher Partners’ time and resources had to be allocated accordingly; and
(e) legal advice had to be sought from solicitors in respect of some employee claims, due to their complexity.
Mr Vasudevan describes in some detail what I would characterise as the difficult situation facing the Former Liquidators upon their appointment so far as employees of the Company were concerned. There is no need for me to set out the details of this, however it is clear that circumstances which occurred prior to the appointment meant that the situation was highly charged, emotional, and fraught with difficulty. The complaint referred to in paragraph 8(b) above resulted in an investigation by DHHS and TAC, which referred to a number of allegations by residents of assault by carers and which named at least 8 carers. These matters were not resolved prior to the appointment of the Former Liquidators, and the issues arising from them occupied a considerable amount of resources of Pitcher Partners during the Period. Mr Vasudevan describes the many interactions with employees and the two people who appear to have been representing them (David Baird and Wally Edwards, who held most of the employee proxies for the creditors’ meeting on 24 June 2016). At least three of the creditors objecting to the claimed remuneration are accused carers. There are examples of heated communications from Mr Baird in the materials.[45]
[45]Vasudevan Affidavit, [34]-[45]; Exhibit DRV-21 to the Vasudevan Affidavit.
Debtor identification and recovery
Mr Yeo says that the Company’s debtors were its main and most valuable asset. Pitcher Partners attended to the identification, reconciliation and pursuit of the Company’s debtors, which included:[46]
[46]Yeo Affidavit, [18].
(a) Reconciling the Company’s Xero financial records;
(b) Reviewing and reconciling the Company’s largest debtors, including DHHS, TAC and Oncall;
(c) Liaising with major debtors and requesting payment;
(d) Establishing funds that had been paid by debtors but not updated on the Company’s debtor schedule, including reviewing bank statements, meeting with Mr Nissen and the Company’s former bookkeeper; and
(e) Identifying, reconciling and invoicing unbilled work, which had not been recorded on the debtor schedule.
Mr Yeo deposes that by the first meeting of creditors held on 24 June 2016, the Former Liquidators had collected $204,866.46 from debtors they had identified and were in a position to report on the true value of the asset to creditors. During the Handover Period, the Former Liquidators received additional debtor payments of $97,327.43.
During the Handover Period, Mr Yeo says that the Former Liquidators incurred additional fees and expenses of $25,554 (‘Handover Costs’).[47] A description of the work done, including a remuneration report,[48] and correspondence with the Current Liquidator about it, has been provided in respect of the Handover Costs.[49] There has been no agreement between the Current and Former Liquidators as to the quantum of those costs. Mr Vasudevan deposes that the Former Liquidators consider the Handover Costs to have been necessarily and properly incurred, but they have not included them as part of this Application as they were not incurred at a time when they were liquidators of the Company.[50]
[47]Yeo Affidavit, [20].
[48]Exhibit ARY-7 to the Yeo Affidavit.
[49]Vasudevan Affidavit, [50]-[60].
[50]Vasudevan Affidavit, [60].
Other liquidation tasks
Mr Yeo describes a range of other tasks performed by Pitcher Partners during the Period, including:[51]
[51]Yeo Affidavit, [22].
(a) obtaining valuations of the Company’s plant and equipment located at the Premises;
(b) reporting to ASIC and issuing statutory notices;
(c) attending all Premises to deal with assets, locate books and records and facilitate the transfer of utility service accounts;
(d) corresponding with funding bodies;
(e) carrying out all necessary searches for and taking all steps necessary to secure cash at bank and close bank accounts;
(f) carrying out all necessary searches to locate assets;
(g) corresponding with the ATO;
(h) liaising with Oncall and the landlord of the Mornington premises regarding the proposed sale of certain plant and equipment;
(i) reviewing leases and issuing disclaimer notices;
(j) preparing minutes of meeting and convening the first meeting of creditors; and
(k) attending to all other general administrative duties and tasks in the liquidation.
Funds currently held
As at 21 August 2017, the Former Liquidators held $310,105.37 on trust in the liquidation. Two days later the sum of $100,000 was paid to the Current Liquidator.[52]
[52]Yeo Affidavit, [23].
The Former Liquidators have retained the sum of $181,508.30 on trust, pursuant to their lien, being:[53]
(a) $131,508.30 (inclusive of GST) in respect of their remuneration for the Period; and
(b) $50,000 (inclusive of GST) in respect of their estimated future fees and expenses, including legal fees and disbursements, relating to the Applications.
[53]Yeo Affidavit, [24].
As at 8 May 2018, the balance of funds being held by the Former Liquidators is $210,105.37, being the amount referred to in paragraph 42 above and the balance of $28,597.07 being surplus funds.[54]
[54]Yeo Affidavit, [25].
The Former Liquidators’ rates and method for calculating remuneration
The Remuneration Report contains a schedule of hourly rates for Pitcher Partners as at 7 March 2016 (‘Rates’). The positions and rates are set out in the table below:
Classification Hourly rate (excl GST)
$Partner/Appointee 650 Client Director 590 Senior Manager 560 Manager 2 500 Manager 1 460 Assistant Manager 2 380 Assistant Manager 1 360 Senior Analyst 2 330 Senior Analyst 1 300 Supervisor 280 Analyst 3 250 Analyst 2 230 Analyst 1 195 Insolvency Clerk 195 Intern 150 Secretary 170 Filing clerk 110
The Remuneration Report sets out the details of the quantum of the remuneration claimed, details of the work for which the remuneration is claimed, and how the remuneration was calculated. The remuneration has been determined on a time basis and the total payable or claimed was not capped.[55]
[55]Yeo Affidavit, [26]-[27].
Pitcher Partners’ staff recorded their time for each task and gave short descriptions for them in the form of narrations. A detailed spreadsheet has been produced, showing the name of the employee performing the work, the time spent, the narration for the work performed, the hourly rate and the fees incurred for each of those tasks (‘Detailed Schedule’).[56]
[56]Yeo Affidavit, [28]-[30]; Exhibit ARY-8.
Objections to the remuneration claimed and the Former Liquidators’ responses
The minutes of the reconvened COI meeting held on 10 May 2017 list objections made to the remuneration claimed by the Former Liquidators. Mr Vasudevan says that these objections were referred to in objections made by Mr Edwards, Mr Baird, and five individual employee creditors (‘Creditor Objections’).[57]
[57]Vasudevan Affidavit, [48].
Mr Vasudevan then addresses each of the Creditor Objections in his affidavit. I have described this briefly in the following paragraphs.
The first of the Creditor Objections is that the Company’s business had already been taken over by Oncall and the Company was not trading when the Former Liquidators were appointed. Mr Vasudevan says that this statement is correct.[58]
[58]Vasudevan Affidavit, [48(a)].
The second of the Creditor Objections is that the hours spent in total across an appointment lasting 12 or 13 business days, being 387.9 hours, appeared excessive. Mr Vasudevan says that the Period is 13 business days (inclusive of start and finish dates) and a small amount of time ($429) was recorded in 3 entries on a weekend day. He says that 24 different people worked on the matter. This was required so as to co-ordinate attendances at multiple sites simultaneously upon appointment which required two staff members at each site; ensure a smooth and timely transition to Oncall, with a number of tasks divided among several staff members; divide the work across the appropriate levels to maximise efficiencies; ensure information was provided to stakeholders, including employees, in a timely manner; and ensure the informal employee meeting was conducted in a timely and efficient manner which required multiple staff to attend to answer queries and register attendances. He refers to the description of the work conducted in the Yeo Affidavit and then goes on to set out, in detail, a number of other tasks performed in the liquidation.[59]
[59]Vasudevan Affidavit, [48(b)-(e)].
The third of the Creditor Objections is that the apportionment of approximately 32.33 hours per day representing approximately four full-time staff working on the matter each day for a company not trading seemed excessive. Mr Vasudevan says that at 13 business days, it is an average of 29.8 hours per day, recorded across multiple staff. By reference to the work done as described above, he also reiterates that significant work was required, irrespective of the fact that the Company was not trading.[60]
[60]Vasudevan Affidavit, [48(f)-(g)].
The fourth of the Creditor Objections is that the chargeable time of Shanon Thomson, a senior manager at Pitcher Partners, in the amount of 83.4 hours appeared unlikely on the basis that he would have been required to effectively work full-time on this single appointment for the entire 12 full business days as a senior manager, which in a firm the size of Pitcher Partners is not feasible because he must have had numerous other files and matters to deal with and supervise. Mr Vasudevan says that Mr Thomson recorded an average of 6.41 hours per day on the liquidation of the Company during the Period. He then sets out a table showing the breakdown of Mr Thomson’s time per day spent on the liquidation of the Company and the total hours he worked per day. Mr Vasudevan says that this shows Mr Thomson did work on other files as necessary, and he exhibits an extract of the time entries recorded by Mr Thomson.[61]
[61]Vasudevan Affidavit, [48(h)-(j)]; Exhibit DRV-23 to the Vasudevan Affidavit.
The fifth of the Creditor Objections is that the total time spent by Mr Thomson appeared to be completely disproportionate having charged out his time as senior manager only – and not across other chargeable times such as junior manager or supervisor as the matter required. Mr Vasudevan says that Mr Thomson was the senior manager on this file, and that most of Pitcher Partners’ files only have one manager, who are charged out at the rate equivalent to their experience and expertise. He also says that it is not the practice of Pitcher Partners or industry practice to charge operators at different rates dependent upon the task completed. Rather, the work is performed by a staff member of an appropriate level for the task. Mr Vasudevan says he has reviewed the work performed and the time recorded for it by each staff member involved in the liquidation and is satisfied that the charges are appropriate.[62]
[62]Vasudevan Affidavit, [48(k)-(l)].
The sixth of the Creditor Objections is that the time spent by Mr Thomson as a senior manager of 38.5 hours and charging $21,560 plus GST for dealing with creditors appears excessive in the dollar charges and to be work that a senior manager ought not be doing and should have been delegated to more appropriate junior members of staff. Mr Vasudevan says that Mr Thomson was the senior manager on the file and was required to attend creditor meetings and review documents to and from creditors. He also had to spend time reviewing information delegated to and prepared by other staff on the file, who were working on other sections of the external administration. In addition, a significant period of time was spent by Mr Thomson in dealing with Mr Baird, both directly and with the consequences of his actions flowing through to the former employees.[63]
[63]Vasudevan Affidavit, [48(m)-(o)].
The seventh of the Creditor Objections is that the total time of analysts 1, 2 and 3 disclosed as being 249.1 hours across the entire 13 days of appointment appears excessive. Mr Vasudevan says that the time recorded against the ‘analyst 1’ level code includes 4 different staff members, the ‘analyst 2’ level code covers 1 staff member, and the ‘analyst 3’ level code includes 3 different staff members. He also says that he has reviewed the tasks completed and the time recorded, and is satisfied that it was appropriate to have staff members of these three levels conducting those tasks and the volume of time recorded is not excessive.[64]
[64]Vasudevan Affidavit, [48(p)-(q)].
The eighth of the Creditor Objections is that the total dollar value of time charged in the amount of $119,553 plus GST across 13 business days represents $9,196.38 per day plus GST and for a company not trading appears to be particularly excessive. Mr Vasudevan refers to the work conducted as described in the Yeo Affidavit and his own affidavit and denies that the remuneration sought is excessive in all the circumstances of the appointment.[65]
[65]Vasudevan Affidavit, [48(r)].
Mr Vasudevan also describes further objections raised in individual letters of objection and responds to them as follows:
(a) One individual employee creditor objects that Pitcher Partners did not realise any assets and the charges levied are disproportionate to the results achieved. Mr Vasudevan says that it is incorrect to say no assets were realised during the Period and the Handover Period. He says that cash at bank was realised, debtors totalling $296,659.30 were realised, and refunds from pre-appointment Workers’ Compensation totalling $1,120.80 were obtained.[66]
(b) Mr Baird objects that the liquidators were aware that the Company did not need to be administered as a going concern as Oncall had already been appointed by DHHS and therefore visiting the Premises was redundant and ran up totally unnecessary costs. Mr Vasudevan says that it is correct that DHHS had replaced the Company with Oncall. However, the Former Liquidators had statutory obligations to investigate and value assets of the Company, collect books and records, and otherwise ensure that all stakeholder concerns (such as employees, residents, DHSS) were addressed expeditiously and with minimal disruption. Mr Vasudevan denies that it was in any way inappropriate for staff to visit each of the Premises and that he believes it would have been negligent not to do so.[67]
Former Liquidators’ remuneration for the work performed in connection with the Remuneration Application
[66]Vasudevan Affidavit, [49(a)].
[67]Vasudevan Affidavit, [49(b)].
Ms Baskett deposes that she is informed by Mr Vasudevan and believes that the Former Liquidators and their staff incurred work in progress (‘WIP’) in the amount of $50,022.50 (including GST) in preparing the material for the Remuneration Application.[68] She exhibits a WIP report prepared by the Former Liquidators in this regard (‘WIP Report for Remuneration Application’).[69]
[68]Second Baskett Affidavit, [9].
[69]Exhibit CAB-4 to the Second Baskett Affidavit.
Former Liquidators’ costs and expenses incurred in connection with the Remuneration Application
Ms Baskett deposes to the costs and expenses incurred by the Former Liquidators in connection with the Remuneration Application.
The Former Liquidators have paid out of pocket expenses of $2,575.30 (including GST), being:[70]
(a) Disbursements invoiced by Frenkel Partners in the amount of $332.70 (including GST); and
(b) The filing fee for this proceeding of $2,242.60.
[70]Second Baskett Affidavit, [10]. Exhibit CAB-5 is a copy of the Frenkel Partners’ disbursement invoice and the filing fee receipt.
The Former Liquidators have incurred, but not yet paid, out of pocket expenses of $56,781 (including GST), being:[71]
[71]Second Baskett Affidavit, [11]. Exhibit CAB-6 is a copy of the Frenkel Partners’ fee and disbursements invoice.
(a) Fees to 17 January 2019 of Frenkel Partners in the amount of $49,379 (including GST) (‘Frenkel Partners’ Fees Schedule’);
(b) Counsel’s fees to the same date in the amount of $7,250 (including GST); and
(c) Disbursements with Frenkel Partners in the amount of $152.57 inclusive of GST.
The Former Liquidators anticipate further expenses of a minimum of $8,000 after 17 January 2019 to finalise the Remuneration Application (‘Future Expenses’), being:[72]
(a) Frenkel Partners fees of $3,000 (including GST); and
(b) Counsel’s fees of $5,000 (including GST).
[72]Second Baskett Affidavit, [12].
Submissions
It is convenient to first deal with the submissions made by the Former Liquidators and by the Current Liquidator in general terms. Submissions were made in relation to specific issues: it is more convenient to deal with those and set out my views, issue by issue, which I will do in the next section.
Submissions of the Former Liquidators
The Former Liquidators submit that they have addressed in detail the matters raised by the objectors.
They also contend that:
(a) the remuneration claimed is reasonable in all of the circumstances;
(b) all of the work that is the subject of such claim for remuneration and all associated expenditure was necessary and warranted; and
(c) the quantum sought for remuneration in this regard is reasonable and properly incurred.
The Former Liquidators submit that the Remuneration Application ought be allowed in the amount sought; that the further remuneration incurred in connection with the Remuneration Application ought be allowed; and the out of pocket costs of the application ought be paid as an expense in the winding up of the Company in the amount claimed.
The Former Liquidators also submit that the funds held by them may not be sufficient to cover their remuneration and expenses. In that event, they say they may need an order to facilitate payment of the shortfall from the GST refund, which is likely to arise as a result of the payment by the Company of the Former Liquidators’ remuneration, or from other Company funds with the Current Liquidator.
Submissions of the Current Liquidator
In making his submissions, the Current Liquidator refers to the code of professional practice of the Australian Restructuring Insolvency and Turnaround Association (‘ARITA’) (‘ARITA Code’).[73] The Current Liquidator submits that the ARITA Code provides a useful and practical gloss on the legislation and relevant authorities relating to the reasonableness of an external administrator’s remuneration.
[73]ARITA Code of Professional Practice, 3rd Edition (1 January 2014, as amended 18 August 2014). A copy of the ARITA Code was provided with the Current Liquidator’s Submissions.
The Current Liquidator relies on the following extracts from the ARITA Code:
(a) Section 14.2 relevantly provides:
In order to claim Remuneration for necessary work, the Practitioner will need to establish that the work was properly performed.
Creditors are entitled to expect that Administration funds are not expended on work that was not properly performed.
All time spent for necessary work properly performed should be recorded against the Appointment using an appropriate system.
Before claiming Remuneration, the Practitioner must identify any work and time that should not be claimed.
(b) Section 14.3 relevantly provides:
The Practitioner should exercise professional and commercial judgment in considering whether work is to be performed.
(c) Section 14.6 relevantly provides:
In time-based charging, the Practitioner must ensure that the number and qualifications of staff allocated to an Administration is appropriate for the nature of the work being performed so that the Administration is completed in the most efficient and effective manner.
This will require commercial and professional judgment. While a particular task may be appropriate to a particular level of employee, the Practitioner may consider that, even though charging at a higher hourly rate than the employee, he or she may be able to do the work in one quarter of the time.
Care should be taken in allocating the appropriate number and level of staff to an Administration or task, particularly when travel is required. This is a balance between having sufficient staff available to undertake the required tasks and over servicing the Administration.
The Current Liquidator’s Submissions then go on to make submissions about specific objections and items: I will set these out below, along with the Former Liquidators’ Reply Submissions which address each of the objections.
Consideration
Former Liquidators’ prima facie case for approval
Based on all of the evidence provided, I am satisfied that the Former Liquidators have made out a prima facie case for approval of their remuneration, within the meaning referred to in paragraph 23 above. That is, the Former Liquidators have made out a prima facie case that the remuneration claimed is fair and reasonable, and there is sufficient information to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken.
From my experience in matters associated with insolvency administrations, I know the hourly rates specified by the Former Liquidators to be commensurate with the hourly rates typically charged by insolvency practitioners.
Objection – no indication of write-offs
Current Liquidator’s Submission
The Current Liquidator says that there is nothing in the affidavits filed by the Former Liquidators which addresses section 14.2 of the ARITA Code, as there is nothing to indicate write-offs or zero value recording of time spent on tasks that were not in their entirety properly performed.
Former Liquidators’ Response
The Former Liquidators say that in the absence of evidence to the contrary, the Court should not assume that time has been recorded or retained inappropriately. They also rely on Mr Vasudevan’s statement in his affidavit that all of the time recorded was necessary and warranted, and that it was reasonable and properly incurred.[74]
[74]Vasudevan Affidavit, [63].
Analysis
In my experience, the schedules produced by external administrators in support of their remuneration applications, such as the Detailed Schedule relied upon here, do not usually include written-off amounts or zero value recording. It is more common for the external administrator to remove items for which they make no claim (if there are any) or make other adjustments, and then to depose to having reviewed the schedules and confirming whether they consider the items claimed to be reasonable.
That is what has been done here. True it is that neither of the Former Liquidators say that they have removed certain items, or written down others, but that does not necessarily mean that they have not carried out the task required by section 14.2 of the ARITA Code. Mr Vasudevan confirms that the time recorded in the Detailed Schedule was necessary and warranted, and that it was reasonably and properly incurred. Therefore, there is no reason for me to review the Detailed Schedule with a starting premise that it contains items which ought not be allowed. Rather, I have reviewed the Detailed Schedule to determine whether there are items which are not adequately explained or justified, or which should have been delegated to a lower level staff member, or which should be reduced in some way. In other words, items which I consider have not been reasonably claimed based on the criteria set out in s 473(10) of the Act.
Objection – too many staff engaged on the file
Current Liquidator’s Submission
The Current Liquidator acknowledges that each of the Premises had to be attended, but says that having up to 24 different professional staff engaged on the liquidation is excessive, where the duration of the appointment was only 13 days, the Company was not trading, and the general complexity of the liquidation did not warrant the involvement of so many professional staff.
Former Liquidators’ Response
The Former Liquidators respond to this in detail, explaining that although 24 different staff recorded time in the liquidation (some of whom were professional staff and others not), the majority of the work was done by the following 8 persons:
(a) Mr Vasudevan, as the partner;
(b) Mr Thomson, as the manager;
(c) Ben Kalmus, Marcus Mathews, James van den Driesen and Tina Lau as juniors;
(d) Matthew Tropeano as a junior – he undertook tasks in relation to debtors, and 87% of his time was recorded for debtors; and
(e) Catherina Arias as the non-professional staff member.
A breakdown of the level, hours and dollar value for each of these 8 persons is then given, as follows:
Name Level Hours Value (excl GST) David Vasudevan Partner 15.6 $10.140.00 Shanon Thomson Senior Manager 83.4 $46,704.00 Ben Kalmus Analyst 3 36.2 $9,050.00 Marcus Mathews Analyst 3 34.0 $8,500.00 James van den Driesen Analyst 1 47.1 $9,184.50 Matthew Tropeano Analyst 1 29.2 $5,694.00 Tina Lau Analyst 1 72.1 $14,059.50 Catherina Arias Administration Staff 16.9 $3,295.50 Total 334.5 $106,627.50
A breakdown of the other staff members in the same format is then given. Those 16 staff members spent a total of 53.4 hours at a total dollar value of $12,915 on the liquidation. There is no need for me to set out the table in relation to those staff.
Of the two largest time recordings in this second group:
(a) Will Petropoulos, an analyst 3, travelled to each of the Premises. All time spent by him on the liquidation was in relation to these attendances, including briefing the main staff working on the liquidation following those attendances and preparing file notes/records about the attendances; and
(b) Sophie Lao, an analyst 2, travelled to each of the Premises. The majority of time spent by her was in relation to these attendances, including briefing the main staff working on the liquidation following those attendances and preparing file notes/records about the attendances. She also spent a minor amount of time in relation to asset realisation.
The balance of the staff in this second group spent minimal time on the file, with the majority being non-professional staff doing specific tasks that were required to be undertaken.
Analysis
In my view, the Former Liquidators have satisfactorily addressed this objection. It is too simplistic to just say ’24 staff members is too many’ without looking at whether most of the work was done by a smaller group (which it was), whether there was adequate delegation, and whether the tasks which needed to be performed necessitated that number of people. I will address the delegation issue in the next section.
The Current Liquidator properly acknowledges that it was necessary for each of the Premises to be attended. I note that the Current Liquidator does not make the same complaint in this regard as was made in the Creditor Objections: there, some complained that visiting the Premises was unnecessary and having two staff members do so was excessive. I do not accept this objection: in my view, it was appropriate for each of the Premises to be attended and it was appropriate for two staff members to do so. In the context of this liquidation, it would have been inappropriate to expect a staff member to attend one of the Premises on their own.
Objection – some work performed by Mr Thomson should have been performed by more junior staff
Current Liquidator’s Submission
The Current Liquidator observes that Mr Thomson, a senior manager with an hourly rate of $560, undertook an average of 6.41 hours per day on the liquidation. He says that much of this work could, and should, have been undertaken by a junior manager, supervisor or lower classified staff member. To support this, he says that a total of only 1.8 hours work was allocated between the classifications of junior manager and supervisor.
The Current Liquidator submits that a number of tasks performed by Mr Thomson under the heading ‘Creditors’ were more appropriate for junior staff, and lists 29 items in the Detailed Schedule as instances of this.
Likewise, the Current Liquidator submits that time spent by Mr Thomson in dealing with employees is excessive for an operator at his classification, and should have been allocated to more junior staff. In this regard, he identifies 12 items in the Detailed Schedule, which he describes as a ‘non-exclusive list’. I pause here to observe that if a party wishes to make a submission such as this, it is more helpful for the Court for such instances to be specified, rather than a few mentioned and then expecting the Court to trawl through every item in the Detailed Schedule to identify more examples. That is not the nature of the Court’s task: this is not akin to a taxation of costs. WIP reports, or schedules such as those used here, are often voluminous and can reasonably be approached through sampling.
Further, the Current Liquidator submits that Mr Thomson reviewed the work of junior staff multiple times in relation to the drawing of the DIRRI and the first circular to creditors. Specific items are listed. As an example, the DIRRI took four 6-minute units for an analyst 1 to draw, a further four units for the same person to amend it, two units for the senior manager to review, three for a further review, together with its annexures, and 3 for a final review and discussion with one of the Former Liquidators. The Current Liquidator submits that this indicates either that the work was not properly done the first time, or that the personnel engaged in the task were not appropriately allocated.
Former Liquidators’ Response
In response, the Former Liquidators submit that as Mr Thomson was the point man, it was common for incoming calls from major stakeholders, general creditors and employees to be made directly to him in the first instance. Further, given the events during the Period and particularly the aggressive nature of some creditors, it was not appropriate for more junior staff to be directed to take those calls.
In relation to the specific items listed by the Current Liquidator as instances of where the work undertaken by Mr Thomson regarding ‘Creditors’ should have been done by more junior staff, the Former Liquidators have provided a table which lists the items, summarises the narrations, and says why the tasks were undertaken by Mr Thomson.
Items Narration Reason why undertaken by Mr Thomson 359-361, 371, 373, 377, 386, 391, 397, 399, 407, 412, 437, 444, 480 Discussion with director, Oncall and insurance In the first few days, the manager was the person who dealt directly with the director and major stakeholders (rather than other staff). These are matters appropriately dealt with by a person at senior manager level. 374, 375, 393, 410, 411, 414, 430, 462, 466 Discussion with creditors and Premises managers To delegate the task to a staff member, and then have them undertake the task and report back to Mr Thomson may have taken more time than having him make or take the phone call himself. To delegate out and report back may not have resulted in a costs’ saving. These are matters appropriately dealt with by a person at senior manager level. 389 Preparing correspondence to Oncall The arrangements with Oncall were complex. These are matters appropriately dealt with by a person at senior manager level. 432 Review of fair work claim It is entirely appropriate that this review was undertaken by the Senior Manager on the file.
A similar table is provided for the specific items where the Current Liquidator says the time undertaken by Mr Thomson in dealing with ‘Employees’ is excessive for an operator at his classification and should have been done by more junior staff.
Items Narration Reason why undertaken by Mr Thomson 649 Dealing with Fair Work Commission These are matters appropriately dealt with by a person at senior manager level. 653, 657, 677, 684 Phone calls with employees To delegate the task to a staff member, and then have them undertake the task and report back to Mr Thomson may have taken more time than having Mr Thomson make or take the phone call himself. This is especially so given that each call was only about 2 units and to delegate out and report back may have been 3 or 4 units in total. Having a more junior staff member involved may not have resulted in a costs’ saving. In addition, in the first few days, it is often the manager who will deal directly with major stakeholders (rather than other staff). These are matters appropriately dealt with by a person at senior manager level. 667 Phone call with director regarding employees and request for information In the initial stages of a file, the manager was the person who dealt directly with the director and major stakeholders (rather than other staff). These are matters appropriately dealt with by a person at senior manager level. 695 Preparing email to individual employee creditor For Mr Thomson to have delegated the task to a junior and then review the work would not have resulted in any cost savings (he spent 4 units on this). 650 Responding to solicitors It is appropriate that this task was undertaken by the manager on the file. In addition, for Mr Thomson to have delegated the task to a junior and then review the work, would not have resulted in any costs savings (he only spent 2 units on this). 721 Review of employee pay rates It is appropriate that this task was undertaken by the manager on the file (they need to know what the right pay rate is when reviewing calculations). Note that this is one unit. 741 Review of employee amounts in IPS It is appropriate that this task was undertaken by the senior manager on the file (they need to know that employee amounts have been entered correctly in Pitcher Partners’ system and they also need to know how much employees are owed when having meetings of creditors/employees). 743 Arranging documents for meeting Needed to prepare brief for liquidator who was holding the meeting (see item 744).
In relation to the Current Liquidator’s complaint that Mr Thomson reviewed the work of junior staff multiple times in relation to the DIRRI and the first circular to creditors, the Former Liquidators submit that these are important documents and it is appropriate that they be checked carefully. They also submit that under the ARITA Code, failing to properly disclose matters in the DIRRI is a disciplinary offence that may result in the cancellation of a practitioner’s practicing certificate.
Analysis
I consider that the Former Liquidators have satisfactorily addressed this group of objections. It is appropriate that a senior staff member engage in the direct dealings with creditors and employees, who are understandably concerned as to the impact of the liquidation on them and are often unsurprisingly agitated or demanding in their dealings with a liquidator or their staff. This is particularly so early in the liquidation or when the issues being dealt with are contentious or complex. It is less so once the dealings become more routine. One can readily imagine a creditor or employee becoming frustrated if their dealings were with a junior staff member who was unable to address their issue or had to confirm the position with a more senior staff member before giving a substantive response.
It is also the case that while some tasks may have been able to be performed by more junior staff, by the time it was delegated and supervised by Mr Thomson and performed by the junior, the time and cost may well have been much the same or possibly greater. By way of example, items 462, 466 and 741 likely fall into this category, but the differences are negligible. If these 3 tasks had been performed at analyst 1 level instead of by Mr Thomson, and assuming the analyst 1 spent the same amount of time on them as Mr Thomson, the saving would be $182.50. That is without allowing any time for delegation and supervision by Mr Thomson. I do not consider it necessary to reduce the remuneration claimed in response to this objection.
In relation to the DIRRI, I have reviewed the specific items and I do not consider them to be excessive.
Objection – no need to review preference and voidable transactions reviews
Current Liquidator’s Submission
The Current Liquidator submits that it was not necessary for the Former Liquidators to undertake preference and voidable transaction reviews prior to the first meeting of creditors, at which their appointment would be ratified or they would be replaced. The work will need to be reviewed in detail or substantially repeated by the Current Liquidator. Eight specific items in the Detailed Schedule are listed by the Current Liquidator in this regard.
Former Liquidators’ Response
The Former Liquidators contend that it was not unreasonable for them to perform this work, as:
(a) They have an obligation to act in a timely manner;
(b) The work was necessary for the purpose of the liquidation; and
(c) The work informed foundational tasks in the liquidation, including the task of locating and securing relevant company records.
Analysis
I do not accept the proposition that it is inappropriate for a liquidator to investigate whether there may be unfair preferences or voidable transactions, particularly at a preliminary level, before the first meeting of creditors. First, the time between appointment and first meeting is generally short and there is a limited amount of time for such reviews as a consequence, so that it could only be done in a preliminary way at first. Second, it is not uncommon for creditors to ask about such matters at the meeting, and it is unsurprising that liquidators may wish to have formed a preliminary view on the scope or extent of such claims. Third, even a preliminary view on the value of such claims may be of assistance to the liquidator in carrying out their duties and in addressing creditor queries.
It is true that if a liquidator is replaced at the first meeting then the new liquidator may have to substantially review or repeat work done by the first liquidator. Such an observation could be made of a number of tasks which have already been carried out. However, this is a consequence of replacing the liquidator, of which any properly advised creditor voting for a change of liquidator would be aware. I do not see how this is a basis for saying that the first liquidator should refrain from carrying out certain tasks prior to the first meeting, in case they are replaced. This would fly in the face of the obligations which liquidators have upon their appointment.
Therefore, I accept the Former Liquidators’ submissions in this regard.
The eight items referred to by the Current Liquidator comes to a total of $1,556. This comprises 6 hours of one staff member at analyst 3 level at a cost of $1,500 plus 1 unit of Mr Thomson at a cost of $56. I have reviewed these items and do not consider this to be unreasonable.
Objection – legal costs incurred for the Applications are unreasonable
Current Liquidator’s Submission
The Current Liquidator says that the legal costs incurred by the Former Liquidators in this proceeding, particularly the $44,890 (excl GST) in solicitors’ fees, are not reasonable. They say that all of the charged work during 2018, and most of the work on the file, was undertaken by a principal lawyer with a charge-out rate of $500 per hour, including on tasks such as drafting and settling service letters, settling exhibit sheets and redacting exhibits, some of which would ordinarily be given to junior practitioners or administrative staff.
Former Liquidators’ Response
The Former Liquidators say that the legal costs incurred were appropriate, as:
(a) The liquidation was complex and contentious, as was the Remuneration Application;
(b) The tasks performed and substantive material drafted required a person of partner level and experience;
(c) It was appropriate for a person at partner level to redact the exhibits, given the sensitivity of the material;
(d) The affidavits filed were extensive and involved a large volume of exhibits, and it was therefore appropriate for the partner with the conduct of the matter to check exhibit sheets were correctly collated and described after they were initially drafted by administrative staff;
(e) The work performed by administrative staff (such as initial drafts and preparation of service material) was not charged at all; and
(f) The Frenkel Partners charge out rate for a partner is the same as some other firms charge for more junior solicitors.
Analysis
The parties did not address the question of the Court’s power to approve the Former Liquidators’ out of pocket expenses, including legal costs. It appears that both parties have approached the application assuming that the Court can do so.
The issue of the Court’s powers in this respect was dealt with by Gordon J (as her Honour then was) in Deputy Commissioner of Taxation v Starpicket Pty Ltd (No. 2) as follows: [75]
The Liquidator’s claim for $98,042.43 includes fees for the work performed by the Liquidator and his staff and his disbursements (referred to as “out of pocket expenses”). It is necessary to address the question of whether s 473 of the Corporations Act empowers the Court to determine the Liquidator’s claim for his disbursements or whether some alternative basis is required to assess that claim.
Pursuant to s 473(3)(b)(ii) of the Corporations Act, the Court has jurisdiction to review and fix the Liquidator’s “remuneration”. Notwithstanding the approach taken in previous cases such as Re Solfire Pty Ltd (in liq) (No 2) (1998) 16 ACLC 1156, it is now accepted that a Liquidator’s “remuneration” does not include disbursements: see Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 100; Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424 at [50]; and Huxtable, in the matter of Timeshare Resort Club Ltd ACN 009 085 358 (in liq) (2010) 187 FCR 13 at [36]-[37]. The same cases are also authority for the proposition that the Court’s jurisdiction under s 473(3)(b)(ii) of the Corporations Act does not extend to legal fees incurred by the Liquidator, which fall under the head of disbursements and not remuneration.
Accordingly, the Court does not have power under s 473(3)(b)(ii) of the Corporations Act to review and approve the Liquidator’s disbursements.
A liquidator who is entitled to remuneration normally has an equitable lien over the assets under his administration to secure payment of that entitlement as well as his disbursements: see Re Biposo Pty Ltd (No 2) (1995) 124 FLR 385; Prendergast v Rolcross (in liq) [2008] NSWSC 146 at [39]. Being of the equitable variety, a liquidator’s lien is not dependant on possession and, as such, survives termination of the liquidator’s appointment: see Nationwide News Pty Ltd v Samalot Enterprises (1986) 5 NSWLR 227 at 230-231; Shirlaw v Taylor (1991) 31 FCR 222 at 231.
….
Section 1321 is of greater relevance. Pursuant to s 1321, a person “aggrieved” by an act, omission or decision of a liquidator may appeal to the Court in respect of that act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit. Neither Starpicket nor the Scotts have expressly sought relief under s 1321. However, that does not preclude an order being made in relation to the Liquidator’s disbursements under that section. Both Starpicket and the Scotts take issue with the Liquidator’s claim, not only in respect of the Liquidator’s fees, but also with the disbursements the Liquidator incurred shortly before the 31 October 2012 Orders. Finally, if it be necessary, the Court retains an inherent power to make an order giving directions to a court-appointed liquidator as an officer of the Court: see Re JW Murphy & PC Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569; BL & GY International Co Ltd. Accordingly, I am satisfied that the Court has the power to review and determine the Liquidator’s claim for disbursements.
[75][2013] FCA 699, [15]-[21] (‘Starpicket’).
Accordingly, the Court does not have power pursuant to s 473(3) of the Act to review and approve the Former Liquidators’ disbursements. Whether or not some other power can be called in aid here was not addressed by the parties. In the absence of submissions on this topic, I will defer expressing a concluded view and making any orders in this respect.
Objection – amount of remuneration to be approved should be lower than that claimed
Current Liquidator’s Submission
The Current Liquidator concludes by referring to the sum of $85,000 plus GST, which the COI indicated it would be willing to approve on 26 April 2017,[76] and says that this represents reasonable remuneration for the Former Liquidators during the Period. He requests that the Applications not be allowed in their entirety.
[76]Exhibit ARY-2 to the Yeo Affidavit.
Former Liquidators’ Response
The Former Liquidators submit that a rough calculation of the individual items in the Detailed Schedule objected to by the Current Liquidator totals $9,222.50 (excluding GST). Even if all of that is to be disallowed, noting that the complaint made in many instances is that a lower charge out rate should be applied rather than the items disallowed entirely, that leaves a balance of $110,330.50 plus GST which is not the subject of specific challenge. The Former Liquidators say that the suggested figure of $85,000 plus GST is therefore completely arbitrary.
Analysis
It is trite to say that the amount of remuneration to be approved should be less than that claimed only if I consider it appropriate to do so. I accept the Former Liquidators’ submission that the sum of $85,000 plus GST appears to have been arbitrarily chosen by the COI, since there is no explanation in the COI minutes for the meeting held on 26 April 2017 for this figure. It also does not correlate to any of the submissions made by the Current Liquidator or the Creditor Objections.
Amount of remuneration to be approved
Former Liquidators’ remuneration for work performed in the liquidation of the Company
I have reviewed all of the material, including the Detailed Schedule, and I am satisfied that it was reasonable and necessary to perform the work, that the time taken to perform it was reasonable, and that tasks were appropriately delegated such that the hourly rate applicable to the time taken was reasonable. Consequently, I do not consider it appropriate to make any adjustments to the amount claimed and to be approved.
In particular, the Former Liquidators have adequately addressed each of the Creditor Objections. Some of these objections were also made by or incorporated in the Current Liquidator’s objections (particularly those in relation to the time spent on the liquidation by Mr Thomson), and I have previously set out my views on those.
It is too simplistic to say that because the Company was not trading, much of the work performed by the Former Liquidators and their staff was unnecessary. It is also the case that this was, at least in its early stages, a complex liquidation.
Similarly, it is also too simplistic to view the remuneration claimed by a comparison with the assets realised by a liquidator or by the return to creditors. It is the case that the ‘question of proportionality is a well-recognised factor in considering the question of reasonableness’ and the factors in s 473(10) of the Act have ‘as their unifying theme the concept of proportionality’.[77] But what is required is that ‘the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed … that is what is encompassed in assessing the value of the services rendered.’[78] In Sanderson, a five member bench of the New South Wales Court of Appeal then went on to add two matters:
the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it.[79]
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there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work.[80]
[77]Sanderson, [55].
[78]Sanderson, [55].
[79]Sanderson, [57].
[80]Sanderson, [58].
Here, there was some recovery of assets by the Former Liquidators.[81]
[81]See paragraph 57(a) above.
True it is that the remuneration claimed is substantial given the short time period covered by it, however the question is whether the work performed during that time was reasonable and necessary and whether the remuneration for it is reasonable. This cannot be measured by reference to the number of days, but by the work done.
Former Liquidators’ remuneration for work performed in connection with the Remuneration Application
By the originating process filed in this proceeding, the Former Liquidators sought an order that their remuneration for this application be costs in the winding up of the Company. In the Second Baskett Affidavit, Ms Baskett deposes that the Former Liquidators also seek leave to seek approval for their remuneration and expenses in the making of the Remuneration Application.[82]
[82]These are the Costs of Application, as set out in paragraph 3 above. See also Second Baskett Affidavit, [8]-[9].
The Former Liquidators are entitled to their reasonable remuneration incurred in the preparation and conduct of the Remuneration Application. In Starpicket Gordon J (as her Honour then was) stated that:[83]
The Liquidator is entitled to reasonable remuneration for work performed after the winding up was set aside, to the extent that such work was performed in accordance with his duties and the law. This entitlement encompasses not only the filing of the requisite forms with the Australian Securities and Investments Commission (ASIC), but also those acts required of the Liquidator to transfer control of Starpicket back to its directors. It also includes preparation of the Liquidator’s application for remuneration currently before the Court. As stated by Zeeman J in Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430 at 441:
[T]he applicant is entitled to be remunerated for work necessarily done by him by way of complying with the law subsequent to the termination of his appointment. …
In my view, work properly done by the applicant by way of preparing his claim for remuneration falls to be dealt with as part of his remuneration.
[83]Starpicket, [54]. This reasoning was followed in ACN 104 635 369 Pty Ltd (in liq) (formerly Total Plant Services Pty Ltd) v Hamilton (2015) FCA 1219 (13 November 2015) [53].
While this situation is not analogous, in terms of how the Former Liquidators ceased to be liquidators of the Company, I see no reason why the same principles ought not apply.
Given that creditors did not, either at a meeting of the COI or in general meeting, approve their remuneration, the Former Liquidators had no option other than making an application to the Court.
The Current Liquidator does not make any submissions regarding the remuneration claimed by the Former Liquidators’ in respect of the Remuneration Application. The submissions were filed after the Second Baskett Affidavit was filed, which deals with these aspects, and after provision of the WIP Report for Remuneration Application was filed with that affidavit. Accordingly, the Current Liquidator has had the opportunity to make submissions in regard to this claim but has not done so.
Obviously, given the timing of this aspect of the Former Liquidators’ claim, it is not the subject of the Creditor Objections.
Nonetheless, I have the same obligations to review the amount claimed to determine whether the work performed, and the cost of it, is reasonable.
The amount of $50,022.50 (including GST) in remuneration for this seems to me, at least at first glance, to be very high. I have no evidence from the Former Liquidators or their solicitors as to what work was performed and I have no evidence that the Former Liquidators have reviewed the remuneration claimed to confirm that in their view it is reasonable. All I have is what I can see for myself from the affidavits of the Former Liquidators as filed, along with the other affidavits, the submissions and the WIP Report for Remuneration Application.
It is apparent that there was a great deal of work required of the Former Liquidators and their staff in preparation of the substantive affidavits, primarily the Yeo Affidavit and the Vaseduvan Affidavit. By the time both of these came to be prepared, the Former Liquidators were aware that their claimed remuneration was disputed by a number of creditors and that a great deal of detail would need to be included in these affidavits. It is also apparent that dealing with the Creditor Objections and the Current Liquidator’s objections would have required a substantial amount of work to be done and that this was done, as is evident by the detailed responses to all of the objections.
I have reviewed all of the entries in the WIP Report for Remuneration Application and in my view the following entries ought be either disallowed or reduced, for the reasons set out:
(a) the four entries for Tina Lau, analyst 2, for 26 and 27 September 2017 relating to reviewing WIP reconciliations for handover costs for the Remuneration Application, totalling $720, should be disallowed, as Handover Costs do not form part of the Remuneration Application;
(b) the entry for Mr Thomson for 28 September 2017 relating to review of handover tasks, totalling $232, should be disallowed, for the same reason;
(c) the entry for James van den Dreisen, manager 2, for 8 May 2018 relating to locating remuneration report for handover tasks, totalling $140, should be disallowed for the same reason;
(d) the entries for Simone Martin, manager 2, for 30 November 2018 in relation to marking up significant changes to the affidavit regarding handover costs, totalling $1,200, should be disallowed for the same reason;
(e) the entry for Mr Thomson for 2 October 2017 for review of remuneration and narrations schedule of 1.9 hours at a cost of $1,102 should be disallowed, as there are other entries covering the same task and as a total it is too much, particularly given that Ms Lau had spent substantial time preparing the schedule;
(f) the entries for Ms Martin for 8 May 2018 and 13 December 2018 for attending the swearing of the Yeo Affidavit and the Vasudevan Affidavit respectively, totalling $400 should be disallowed, as I do not accept that this was necessary;
(g) the entries for Ms Martin on 29 and 31 May 2018 in relation to discussing the background of case, including with Ms Baskett, Mr Thomson and Mr Yeo, totalling $900, should be disallowed. It is apparent from the WIP Report for Remuneration Application that work on the Yeo Affidavit began in September 2017 and was worked on through to December of that year, and that it was not until early May 2018 that substantive work on it was recommenced. That same gap is reflected in Frenkel Partners’ Fees Schedule. The reasons for this time-lag are not explained. It seems to me that it is quite possible that this work may not have been necessary had the work been done without a gap and change in some of the personnel, and as noted above I have no confirmation from the Former Liquidators that it was necessary;
(h) the entry for Mr van den Driesen on 31 May 2018 for reviewing all documents and information and arranging them, at a cost of $504 for 1.8 units, should be reduced. This appears to be a task that could have been performed at the insolvency clerk level and I would allow 1.8 units at an hourly rate of $195 for this. Accordingly, there should be a reduction of $203; and
(i) similarly, the entries for Ms Martin on 13 June 2018 for reviewing physical files for particular items, collecting relevant files and scanning them, totalling $950 for 1.9 units should be reduced for the same reason. Allowing 1.9 units at the hourly rate of $195, there should be a reduction of $579.50.
This is a reduction of $5,476.50 on the amount claimed of $45,475, leaving a figure of $39,998.50 (all three figures excluding GST).
In my view, that figure of $45,475 ought to be further reduced, given that I have no evidence that the Former Liquidators have reviewed the amount claimed and consider it to be reasonable. It is possible that items have been included which ought not, and which I do not have enough information from the WIP Report for Remuneration Application to form a concluded view. I would therefore apply a 30% reduction, leaving an amount of $27,998.95 plus GST.
Legal costs and other expenses incurred in connection with the Remuneration Application
For the reasons set out in paragraphs 103 to 105 above, I have not expressed a view as to whether the legal costs and other out of pocket expenses, including the Future Expenses, incurred in connection with the Remuneration Application should be approved. Rather, I will defer doing so and will also defer making orders in respect of them.
Conclusion
For these reasons, orders will be made approving the Former Liquidators’ remuneration in the amount of (GST inclusive):
(a) $131,508.30 for the Period; and
(b) $30,798.85 in connection with the work performed in connection with the Remuneration Application.
Given that no submissions were made in respect of the Court’s power to approve out of pocket expenses, I will give the parties an opportunity to address this issue, before making order in respect of that matter. The parties are requested to contact my Associate to arrange a date for the proceeding to be listed so as to deal with that issue. At that time, I will also hear from the parties as to the appropriate form of orders generally. If there is consent between the parties as to these matters, then they may communicate the agreed view to my Associate so that it can be determined whether a hearing is required.
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