Re Octavia Administration Pty Ltd (in liq)

[2020] NSWSC 927

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Octaviar Administration Pty Limited (in liquidation) [2020] NSWSC 927

Hearing dates:

6 April 2020

Decision date:

23 July 2020

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Remuneration sought by liquidators approved.

Catchwords:

CORPORATIONS – liquidator’s remuneration – liquidations on foot for more than a decade – complex and large liquidations – remuneration approved thus far is $26 million – liquidators reject proofs of debt of members of committees of inspection – committee of inspection fail to approve further remuneration – impasse – no meeting of creditors called – notice of objection served but no evidence and no appearance – court approval of remuneration under section 473 compared with s 60-10 Insolvency Practice Schedule, at [34]-[39] – infer from duration of liquidations that impracticable to call meeting of creditors to approve remuneration – liquidators’ work prior to that for which approval sought not particularly relevant – relevance of expenses at [55] – relevance of remuneration and expenses of special purpose liquidator at [56] – relevance of dividends paid to unsecured creditors [58]-[59] – entitlement to fees of seeking approval [95] – remuneration approved

CORPORATIONS – external administration – committees of inspection – function at [15], [41] – responsibility to continue to involve itself in decisions about remuneration

Legislation Cited:

Corporations Act 2001 (Cth), ss 473(3)(b)(ii), 473(10), 548, 1607, 1608, 1581; Schedule 2, ss 60-10, 80-35; reg 10.25.01; Schedule 13 of the Corporations Regulations 2011 (Cth)

Insolvency Law Reform Act 2016 (Cth)

Section

Cases Cited:

Barbo Group Pty Limited v Investment and Construction Enterprise Pty Limited [2012] VSC 71

Deputy Commissioner of Taxation v Starpicket Pty Limited (No 2) [2013] FCA 699

GIS Electrical Pty Ltd v Melson [2001] WASC 314

in In the matter of Nissand Pty Limited (in liq) [2019] VSC 280

In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270

In the matter ofAberdeen All Farm Pty Ltd (in liquidation) [2020] NSWSC 770

In the matter of Dungowan Manly Pty Limited [2016] NSWSC 1346

In the matter of JSMOT Pty Limited [2020] NSWSC 549

In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092

In the matter of Prime Space Property Investment Limited (in liquidation) [2016] NSWSC 1821

In the matter of Sakr Nominees Pty Ltd (2017) 93 NSWLR 459; (2017) 118 ACSR 333; [2017] NSWCA 38

In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709

In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2004) 52 ACSR 279; [2004] FCA 1682

Kennards Hire Pty Limited v RMGA Pty Limited [2010] NSWSC 1387

Onefone Australia Pty Ltd v One.Tel Limited (in liq) [2012] NSWSC 404

Onefone Australia Pty Ltd v One.Tel Ltd (2008) 69 ACSR 290; [2008] NSWSC 1335

Re Banksia Securities Ltd [(in liq) (recs and mgrs. apptd) [2017] NSWSC 540

Re Earning Pty Limited (in liq) [2019] VSC 152

Re Huxtable, Timeshare Resort Club Ltd (2010) 187 FCR 13; [2010] FCA 673

Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund [2016] NSWSC 1292

Re Interchase Co Ltd (In ProvLiq) (1993) 44 FCR 501

Re Octaviar Limited (in liq) [2019] QSC 235

Re Perdives Pty Limited [2015] QSC 230 at 321; Park v Whyte (No 2) [2018] Qd R 413

Re Ricki Pty Ltd [2015] NSWSC 2048

ReSakr Nominees Pty Ltd [2017] NSWSC 668

Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182; (1998) 16 ACLC 1156

Re Walker as liquidator of One.Tel Limited [2005] 189 FLR 467

Re Westpoint Finance Pty Limited (in liq) [2018] VSC 705

Starpicket (No 2) [2013] FCA 699

Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144; [2011] VSC 380

Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; 16 ACLC 1653

White, In the matter of Macro Realty Developments Pty Ltd and Macro Realty Pty Ltd [2019] FCA 1377

Texts Cited:

Robert P Austin, Austin & Black’sAnnotations to the Corporations Act (LexisNexis, July 2019)

Australian Restructuring Insolvency & Turnaround Association (ARITA) Code of Professional Practice, s 14.8

Category:

Principal judgment

Parties:

William John Fletcher and Katherine Elizabeth Barnet as joint and several liquidators of Octaviar Ltd (in liquidation) and Octaviar Administration Pty Ltd (in liquidation) (First Plaintiffs)
Octaviar Limited (in liquidation) (Second Plaintiff)
Octaviar Administration Pty Ltd (in liquidation) (Third Plaintiff)

Representation:

Counsel:
J Hynes (Plaintiffs)

Solicitors:
Johnson Winter & Slattery (Plaintiffs)

File Number(s):

2011/397200

Judgment

1. HER HONOUR: This is an application to approve liquidators’ remuneration. The application is made under section 473(3)(b)(ii) of the Corporations Act 2001 (Cth). Although that section was repealed by the Insolvency Law Reform Act 2016 (Cth) and replaced by the Insolvency Practice Schedule (Corporations), the section continues to apply to the remuneration of external administrators appointed before 1 September 2017: section 1581, Corporations Act; regulation 10.25.01 and Schedule 13 of the Corporations Regulations 2011 (Cth). 

2. William Fletcher and Katherine Barnet are joint and several liquidators of Octaviar Ltd (in liquidation) and Octaviar Administration Pty Ltd (in liquidation).  They seeks approval of their remuneration:

1. in respect of Octaviar, for eight months from 1 July 2018 to 28 February 2019 in the amount of $358,731.85 plus GST; and

2. in respect of Octaviar Administration, for 12 months to 28 February 2019 in the amount of $420,822.65 plus GST.

The liquidators rely upon an affidavit of Mr Fletcher, two affidavits of John Whittle (an Associate Director of the liquidators’ firm, Bentleys (Qld) Pty Ltd), and an affidavit of the liquidators’ solicitor. 

3. A detailed notice of objection to remuneration was lodged by four members of the committees of inspection of Octaviar and Octaviar Administration, being Octaviar Investment Notes Limited, Octaviar Investment Bonds Limited, the Public Trustee of Queensland and Challenger Managed Investments Limited (the objectors). The liquidators’ counsel described the notice of objection in the following terms:

There is this prevalent [mal]evolence between the parties in terms of the continued operation of the liquidation.  They use the objection … as a platform to complain generally about the liquidation, about how expensive it is and how long it has gone, but critically they don't focus in on any suggestion that the remuneration that is sought is too large, that work wasn't undertaken, … they don't focus on any specific complaint as to the application …

4. The notice of objection was lodged at a time when the liquidators had sought directions from a court as to whether they would be justified in rejecting proofs of debt lodged by the objectors of some $464.5 million and the Supreme Court of Queensland was reserved on this question. The liquidators’ counsel observed:

… one might be forgiven for thinking that a creditor would be less inclined to sign off on liquidator’s remuneration where they see the liquidator is not necessarily advancing their own interest, namely by accepting or rejecting a proof.

5. The objectors did not serve any evidence in support of their objection nor appear. The liquidators’ application must be considered in the light of the available evidence. In the absence of the objectors participating in the hearing of the application, that evidence comprises the liquidators’ records of the work done as elaborated upon by Mr Fletcher and the staff member with the day-to-day responsibility for these liquidations, Mr Whittle.

FACTS

6. On 9 September 2009, Mr Fletcher and Ms Barnet were appointed liquidators of Octaviar and Octaviar Administration by the Supreme Court of Queensland. They were also appointed as liquidators to 11 other companies within the Octaviar group of companies, which comprised a total of around 50 companies.  Mr Fletcher described the Octaviar liquidation as unique given its size, complexity and the variety of work required to be undertaken by the liquidators and their staff. The investment business of the Octaviar group was vast and diversified and ranged from property and hedge funds, corporate finance, lending, childcare centres, aged care facilities, funds management, ski and holiday resorts, travel and tourism and hotels. Whilst I do not doubt that this description is apt, my focus is on work done by the liquidators in the liquidation of Octaviar and Octaviar Administration in the period for which remuneration is sought.

7. Octaviar was the holding company for the Octaviar group while Octaviar Administration performed the treasury and service functions for the group.  Octaviar Administration’s primary assets and liabilities were intercompany loans. David Kerr was appointed as Special Purpose Liquidator to Octaviar in relation to proceedings and issues in respect of which Octaviar and Octaviar Administration’s interests were not aligned, in particular, in relation to intercompany debt.

Legal proceedings on foot

8. Since liquidators were appointed, Octaviar and Octaviar Administration have been involved in a number of legal proceedings. It is necessary to describe four of these proceedings in order to understand the remuneration sought to be approved.

9. First, the liquidators sought directions from the Supreme Court of Queensland in respect of proofs of debt lodged by two subsidiaries arising out of the following capital raising events:

1. In 2006, Octaviar raised some $349 million from an issue of notes by its subsidiary, Octaviar Investment Notes. The notes were issued to the Public Trustee of Queensland. The proceeds of the note issue were lent by Octaviar Investment Notes to Octaviar Administration.

2. In 2007, Octaviar raised $100 million from an issue of bonds by its subsidiary, Octaviar Investment Bonds to Challenger in its capacity as responsible entity of the Challenger High Yield Fund and in its capacity as agent of Colonial First State Investments Limited as responsible entity of the Commonwealth Fixed Interest Fund. The proceeds of the bond issue were lent by Octaviar Investment Bonds to Octaviar Administration.

Octaviar Investment Notes and Octaviar Investment Bonds provided cross-guarantees to each other’s creditors. Both companies are now also in liquidation and Will Colwell is the liquidator of both companies.

10. Following the appointment of liquidators to Octaviar and Octaviar Administration, proofs of debt were lodged by Octaviar Investment Notes, Octaviar Investment Bonds, the Public Trustee of Queensland and Challenger in the liquidations of both Octaviar and Octaviar Administration. The proofs of debt in issue are substantial, for example, Octaviar Investment Bonds and Octaviar Investment Notes’ proofs of debt lodged in the liquidation of Octaviar are some $464.5 million each. However, from the liquidators’ perspective, there was a degree of overlap between the proofs of debt. The liquidators sought directions from the Supreme Court of Queensland as to whether they would be justified in rejecting the proofs of debt to remove duplication.

11. Second, in 2008 Octaviar’s board engaged 333 Capital Pty Limited to advise on cash flow, liquidity and restructuring options. 333 Capital advised Octaviar in relation to the sale of the group’s largest asset being a hotel and leisure business known as “Stella” in February 2008, seven months before Octaviar went into voluntary administration. In 2014, Octaviar and Octaviar Administration commenced a negligence suit against 333 Capital in this Court. The committees of inspection were only prepared to support the continuation of the 333 Capital proceedings if the liquidators were able to obtain third party litigation funding. Although the liquidators entered into negotiations with some 18 overseas and Australian litigation funders from September 2017 to August 2018, they were unsuccessful in obtaining litigation funding and, in December 2018, agreed to withdraw the proceedings with each party to bear their own costs.

12. Third, in September 2008, shortly before Octaviar entered voluntary administration, the Commissioner of Taxation (ATO) issued a garnishee notice to Octaviar Administration in respect of debts owed by Octaviar Administration to Octaviar, to secure an amount of some $58 million claimed by the ATO to be owed by Octaviar. In 2012, the ATO lodged a proof of debt in the liquidation of Octaviar in the amount of $58 million. The proof gave particulars, including an assessment of the value of the ATO’s security, being a statutory charge created by the garnishee notice. The proof assessed the value of the ATO’s security as $1 on the basis that a secured creditor ranked in priority to the ATO and amounts paid by Octaviar Administration to Octaviar were expected to be insufficient to discharge that security. In August 2018, following correspondence with the ATO as to the operation of the garnishee notice and the value and operation of the ATO’s security, the liquidators redeemed the ATO’s security under section 554F(2) of the Corporations Act for $1. The ATO disputes the redemption of its security. Octaviar and Octaviar Administration have since issued proceedings in the Supreme Court of Queensland seeking declarations regarding the garnishee notice and the ATO’s security.

13. Fourth, Octaviar, through the Special Purpose Liquidator, claims it is owed at least $515 million but possibly up to $1.3 billion by Octaviar Administration. Octaviar’s proof of debt has been rejected in full but the rejection is subject to an appeal which is presently stayed.

Committees of inspection

14. On 16 October 2009, the creditors of Octaviar and Octaviar Administration resolved to appoint committees of inspection pursuant to section 548 of the Corporations Act. Although the committees of inspection for Octaviar and Octaviar Administration were appointed before 1 September 2017, the committees are taken to have been established under the Insolvency Practice Schedule, which applies to their continuing activities: sections 1607 and 1608, Corporations Act.

15. As Barrett J observed in Onefone Australia Pty Ltd v One.Tel Ltd (2008) 69 ACSR 290; [2008] NSWSC 1335, historically the role of the committee of inspection is to be consulted, to advise and to warn but it has no formal power to direct the liquidator: at [40]-[45]. This is now reflected in s 80-35 of the Insolvency Practice Schedule, which provides:

80-35    Functions of committee of inspection

(1)   A committee of inspection has the following functions:

(a)   to advise and assist the external administrator of the company;

(b)   to give directions to the external administrator of the company;

(c)   to monitor the conduct of the external administration of the company;

(d)   such other functions as are conferred on the committee by this Act;

(e)   to do anything incidental or conducive to the performance of any of the above functions.

(2)   An external administrator of a company must have regard to any directions given to the external administrator by the committee of inspection, but the external administrator is not required to comply with such directions. …

16. The committee of inspection of Octaviar has six members and, for Octaviar Administration, five members.  The interests of Octaviar Investment Notes, Octaviar Investment Bonds, the Public Trustee of Queensland and Challenger are represented on the committees of inspection by Mr Colwell (for Octaviar Investment Notes and Octaviar Investment Bonds), Gareth Jenkins of Clayton Utz (solicitor for the Public Trustee of Queensland), Stuart Terry for Challenger and Quentin Olde for Colonial First State Investments. These members together are in the majority on the committees of inspection for both Octaviar and Octaviar Administration.

Approvals thus far

17. In December 2013, the committee of inspection for Octaviar Administration resolved that the liquidators’ fees would be prospectively approved for a maximum monthly amount of $25,000 for the task area of “Administration”, $25,000 for the task area of “Committee of Inspection” and $10,000 for the task area of “General Liquidation Work”. The prospective approval was subject to a number of requirements, which it is not necessary to set out save for the following:

To the extent the Liquidators … wish to, or consider that it is in the interests of the estate, to carry out any other work which shall incur fees in excess of $10,000 (plus GST) per month (as approved by the [committee of inspection for “General Liquidation Work”]), then no remuneration will be approved by the [committee of inspection] for any such work which is undertaken unless the [committee of inspection] are provided with a specific scope of work and tasks and fee estimate for consideration by, and consultation with, the [committee of inspection].

Mr Fletcher explained that, from time to time, the committees also approved budgets for particular work streams and, following these agreed budgets, approved the liquidators’ remuneration within the budgeted amounts for those work streams.

18. In 2017, the committee of inspection for Octaviar resolved that the budgets for the same work streams for Octaviar would be set at 50% of the budget for Octaviar Administration, that is, $12,500 per month for “Administration”, $12,500 for “Committee of Inspection” and $5,000 per month for “General” work streams. There has been no increase in these prospective approvals since.

19. The liquidators’ remuneration in respect of both companies was approved from time to time by the committees of inspection up to 30 June 2018.  More precisely:

1. for Octaviar, the committee of inspection has, at seven meetings, approved remuneration totalling some $1.54 million excluding GST; and

2. for Octaviar Administration, the committee of inspection has, at 51 meetings, approved remuneration totalling some $24.9 million excluding GST.

20. Total remuneration from 2009 to 2018 of $26.44 million is an eye-watering number. The liquidators point to the fact that, since their appointment, they have realised some $274 million for both companies to 30 June 2019 and admitted proofs of debt totalling $2.2 billion, amongst numerous other tasks of considerable complexity. Mr Whittle explained that much of the work done by the liquidators was directed to adjudicating proofs of debt rather than making recoveries. Whilst most major creditors were naturally creditors of Octaviar, Octaviar Administration had significantly greater assets on the appointment of external administrators, particularly cash at bank. As such, many creditors sought to establish that they were creditors of Octaviar Administration as well as Octaviar to maximise their return. As a result, a significant component of the liquidators’ work involved adjudicating on proofs of debt and thereby preserving the assets of Octaviar and Octaviar Administration for the benefit of genuine creditors.

21. The objectors suggested that the realisations referred to by Mr Fletcher were overstated as cash at bank, bank interest and GST refunds were not derived from the liquidators’ exertions. It was further contended that particular realisations were not, in fact, realisations by the liquidators. I am not able to divine whether these arguments were well founded on the evidence before the Court.

An impasse

22. The liquidators’ remuneration was last approved by the committees of inspection on 7 August 2018, that is, almost two years ago. An impasse has since arisen.  As Mr Fletcher described it, “There appears to have been a breakdown in communication, such that the Committees are no longer prepared to consider, or engage in meaningful discussion about, the Liquidators’ remuneration …”. That does appear to be the case.

23. Since September 2018, Mr Whittle says he has had difficulty in engaging the committees of inspection with his request that remuneration be approved. Although he has circulated the remuneration reports and proposed resolutions to approve remuneration well in advance of a scheduled meeting of the committees of inspection, Mr Whittle has not been favoured with timely replies by committee members but has, rather, received emails moments before the commencement of the meetings suggesting that they have a difficulty with what is proposed or need further time to consider the remuneration for which approval is sought.

22. At about this time, it appears that members of the committees of inspection were not particularly happy with some of the decisions which the liquidators were making in respect of the legal proceedings then on foot and already described. On 27 September 2018, Mr Colwell complained about the level of combined remuneration and legal fees being incurred each month and requested a detailed work in progress (WIP) report to support the remuneration reports. “The [committee of inspection] should also reconsider the fee budgets & workstreams, and also any further steps that can be taken to further reduce the rate of cash burn on costs”. Mr Terry agreed, “Cannot continue at this rate”.

23. In October 2018, the liquidators provided their WIP narrations for the relevant months. Whilst suggesting that the liquidators’ average monthly fees were somewhat less than that suggested by Mr Colwell,

This is not to deny the gist of Will Colwell’s email that this has been a long and costly exercise and, is not yet completed. Will Colwell suggests that budgets and work-streams are reconsidered. We agree.

Mr Whittle suggested a way forward, including that work streams and budgets be agreed in three monthly periods; that the liquidators provide three monthly fee approvals in relation to those work streams and budgets; and, that the current budgets for “Administration”, “Committees of Inspection” and “General” work streams be reduced.

26. On 26 October 2018, Mr Fletcher wrote to the members of the committees of inspection noting that the liquidators’ remuneration had not been approved since 1 March 2018 and suggesting that the liquidators were no longer in a position to continue without comfort that their remuneration would be approved and paid on a reasonably regular basis. Mr Fletcher asked that, if members intended to vote against the resolution approving remuneration or to abstain from voting, to let him know before the meeting and provide reasons. On 30 October 2018, Clayton Utz advised that Octaviar Investment Notes and Octaviar Investment Bonds would not be in a position to consider the resolutions for remuneration at the meeting scheduled for the following day and requested that the resolutions be held over to a later meeting but, if the liquidators pressed the resolutions, then these creditors would vote against the resolutions and would not provide reasons for their position. Mr Terry agreed. The proposed resolutions were thus deferred to a later meeting.

27. On 23 November 2018, Mr Fletcher left the first of many messages for Mr Colwell to discuss the proposed resolutions to approve remuneration. A short time before the next meeting on 29 November 2018, Mr Colwell sent the liquidators ten pages of queries arising from a review of the WIP reports. It was suggested that some of the narrations did not seem to justify that the time charged was necessary. Mr Colwell advised that, due to these issues and queries, Octaviar Investment Notes and Octaviar Investment Bonds would be voting against the remuneration resolutions and reserved their rights in relation to remuneration already approved. Challenger supported Mr Colwell’s position. Another member of the committee, OPI Pacific Finance Ltd (in receivership), requested that the meeting be postponed so that the matters raised could be further considered. At the meetings on 29 November 2018, it was resolved that the meetings would be adjourned for at least two weeks for the committees to consider the liquidators’ proposed remuneration resolutions.

28. On 3 December 2018, Mr Fletcher wrote to Mr Colwell:

Finally, I wish to record my concern at the manner in which you have dealt with me on this issue. To be clear, your letter received by me on Thursday, 45 minutes before commencement of the [Octaviar Limited] Committee, gave me no opportunity to respond and which therefore requires that yet another Committee meeting be convened with consequent additional costs.

As you are aware, this is not a one-off event, and follows a pattern of communications sent shortly before Committee meetings, and which have a similar effect. To prevent this disruption from occurring, I have attempted on numerous occasions to speak to you in advance of Committee meetings, in order to find out whether you had any questions or queries that I could respond to either before or at the convened Committee meeting. However you consistently do not take my calls or return them. In this regard I note that I tried to speak to you on 23 November 2018, when you were in your office, but you did not take my call nor did you return the call. I will continue to contact you, in advance of Committee meetings, as I believe that is the correct course of action.

29. Efforts by the liquidators to convene a further meeting of the committees of inspection then encountered the difficulties of the Christmas period. On 6 December 2018, Mr Olde objected:

It is disappointing that every year after 11 months the liquidators once again need to have urgent meetings over the holiday break, just to approve fees. There seems to be a pattern on this matter that the same issues arise over and over again….This matter has been poorly managed for a long period of time and seemingly never improves. This constant calling meetings, just for fee approvals and failing before the meeting starts is quite frankly ridiculous.

There has been a complete lack of consistency in the way fees have been reported, summarised and approved. This has created a certain lack of transparency in this issue over many years. Nearly every fee summary and report format over the near 10 years has been different, inconsistent and lacking clarity…..

My personal view is that I am inclined not to approve further fees …until such time as key milestones and financial outcomes are achieved that benefit the creditors including having the steps required to be fulfilled to pay dividend paid and the matter progressed to finalisation. If the Liquidators feel they need an approval then I think it is due time to face the court and explain this mess to them….

This complaint does not seem to be particularly fair in circumstances where the liquidators had been endeavouring to engage the committees of inspection on this issue for some months. It is also unclear why, if Mr Olde thought the information submitted to the committees of inspection had been inadequate in the past, he kept approving remuneration nonetheless.

30. On 8 February 2019, the liquidators wrote to the members of the committees of inspection providing details of the work performed in the liquidation from 1 September 2018 to 31 December 2018 together with a remuneration report. The letters were comprehensive. In addition, Mr Fletcher responded to Mr Colwell’s letter of 28 November 2018 addressing each of the queries raised in respect of the WIP reports. On 13 February 2019, the liquidators issued a notice of meeting for the committees of inspection on 22 February 2019, at which resolutions for remuneration were proposed.

31. On 21 February 2019, Mr Colwell replied, considering Mr Fletcher’s response to be “wholly inadequate” and noting that he did not accept the contentions put forward and suggested there had been an attempt to improve the quality of timesheet narrations for the period September to December 2018. (If Mr Colwell’s complaint had the consequence that the liquidators improved the quality of their WIP narrations in subsequent months, I do not understand why Mr Colwell wished to complain about this.) Mr Colwell said that he maintained the view that the narrations did not explain in necessary detail the work performed and therefore he was unable to determine if the remuneration sought was reasonable. Nor was it reasonable to charge for the time spent responding to Mr Colwell’s letter of 28 November 2018. It was suggested that this cost was incurred because of inadequacies in the practitioners’ time recording systems, and charging for this was said to be precluded by section 14.8 of the Australian Restructuring Insolvency & Turnaround Association (ARITA) Code of Professional Practice, which provided:

14.8 Costs of claiming Remuneration

Practitioners may claim the necessary and proper costs of record keeping and seeking approval or determination of their claim for Remuneration. If additional costs are incurred because of inadequacies of the Practitioner or Firm’s time recording systems, or due to staff not properly recording their time, these costs would not be necessary and proper. It is not appropriate to charge this additional cost to the Administration and it should not form part of the claim for Remuneration.

Mr Colwell advised that he saw no further point in incurring further costs in corresponding on the issue and would be voting against the resolutions.

32. As to section 14.8 of the ARITA Code of Professional Practice, Mr Whittle says that Mr Fletcher and he took the view that responding to Mr Colwell’s detailed letter was work involved in seeking approval for remuneration as it involved the provision of further information to the committees of inspection to allow them to make an informed decision as to whether to approve the remuneration. In addition, by his letter of 8 February 2019, Mr Fletcher advised that the liquidators had chosen to limit their monthly costs in the Administration and Committees of Inspection work streams to $15,000 and $10,000 per month respectively for Octaviar Administration, and $5,000 and $10,000 per month respectively for Octaviar, hence writing off some $26,000 in costs above that amount. Mr Whittle says this was partly because of the time that had been spent dealing with remuneration resolutions and issues raised by Mr Colwell.

33. At the meetings of the committees of inspection on 22 February 2019, it was suggested to the liquidators that they seek Court approval of their remuneration. The ATO’s representative on the Octaviar committee of inspection has since attempted to facilitate an agreement with the committee’s members regarding remuneration but without success. Mr Fletcher says that the committees have continued to work productively with the liquidators on other matters.

Consequence of impasse

34. The structure of section 473 of the Corporations Act envisages that the Court will not be called upon to determine a liquidator’s remuneration unless and until other means of approving remuneration have been exhausted. Section 473(3) of the Corporations Act provides:

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.

That is, if there is a committee of inspection, then the liquidator must seek to reach agreement with the committee in respect of his or her remuneration. It is only if they fail to agree that the liquidator may proceed to section 473(3) (b). It is implicit within section 473(3)(b) that a resolution must be put to a meeting of creditors and fail to pass, rather than not be put at all, before the liquidator may then approach the Court for approval of remuneration.

35. The section has been construed to permit the Court to approve a liquidator’s remuneration where approval by other means has become unworkable: Onefone Australia Pty Ltd v One.Tel Limited (in liq) [2012] NSWSC 404 at [6] (per Black J). As McKerracher J observed in White, In the matter of Macro Realty Developments Pty Ltd and Macro Realty Pty Ltd [2019] FCA 1377 at [24]-[34], there are two lines of authority in this regard. First, there is authority that it is a prerequisite that a liquidator must seek to have either the committee of inspection (if there is one) or the creditors to determine their remuneration before applying to the Court: Re Interchase Co Ltd (In Prov Liq) (1993) 44 FCR 501 per Drummond J at 502-503, 506; Re Ricki Pty Ltd [2015] NSWSC 2048 per Brereton J at [2]. Second, there is authority that a court may determine a liquidator’s remuneration where no committee of inspection was held and where it was not practically possible to convene a meeting of creditors: Macro Realty at [27]-[29] citing Re Earning Pty Limited (in liq) [2019] VSC 152 at [25]; Barbo Group Pty Limited v Investment and Construction Enterprise Pty Limited [2012] VSC 71 at [7]; Re Walker as liquidator of One.Tel Limited [2005] 189 FLR 467 at [11], [25]-[24]; Re Perdives Pty Limited [2015] QSC 230 at 321; Park v Whyte (No 2) [2018] Qd R 413 at [58]; Starpicket (No 2) [2013] FCA 699 at [10]-[13]. In Macro Realty at [30]: (emphasis in original)

The rationale behind this approach is that while the persons who are financially interested in the outcome of the liquidation are entitled to be consulted whenever it is practically feasible to do so, the Court must have jurisdiction to determine a liquidator’s remuneration where the explicit power to fix a liquidator’s remuneration proves to be practically incapable of being exercised or where there is some other creditors’ rejection, deadlock or paralysis that otherwise practically precludes resolution prior to court application. …

36. McKerracher J considered that there was clear authority that under section 473, absent a committee of inspection approval, a creditor’s meeting must be called at least unless to do so, on clear evidence before the Court, would not be practicable in the circumstances, which his Honour considered would necessarily be a rare case: at [31]. His Honour considered that these authorities were consistent with the current text and purpose of the legislation. At [32]:

… It seems to me that in a rare case where the Court is persuaded that it is impracticable to convene a meeting of creditors, it may approve the remuneration claim. … In such a rare case not only would the impracticability be a key factor, but what also may be relevant is the nature of the notice to the creditors and their response (if any), the opportunity afforded to object, and other measures taken to ensure clear and open communications with the creditors likely to be affected by the remuneration claim.

37. McKerracher J noted that there may be a wide range of circumstances which result in a liquidator seeking approval of their remuneration by the Court, for example, where there are no known current creditors, where all creditors have been paid 100 cents in the dollar and are in that sense no longer creditors, or where there exists genuine practical difficulties in convening a meeting of creditors. At [33]:

… It is because these variety of possible impediments to satisfying s 473(3)(a) and s 473(3)(b)(i) that the power is conferred on the Court by s 473(3)(b)(ii). While this is not to say that liquidators should be readily encouraged to apply to the Court to seek orders in respect of their remuneration and thereby circumvent the primary processes contemplated, it is a recognition that rare circumstances may arise where the impediments are such that it is in the interests of justice that the Court fixes a liquidator’s remuneration.

38. I agree with the analysis in Macro Realty in respect of section 473. The position is, I think, clarified and simplified by s 60-10(1) of the Insolvency Practice Schedule which now provides:

Remuneration determinations

A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members’ voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made:

(a)   by resolution of the creditors; or

(b)   if there is a committee of inspection and a determination is not made under paragraph (a) – by the committee of inspection; or

(c)   if a determination is not made under paragraph (a) or (b) – by the Court.

39. That is, the Insolvency Practice Schedule provides liquidators with three options available from the outset as to how their remuneration may be approved rather than the staged process under section 473 which permits a liquidator to approach the Court only after other means of approval have been exhausted or proved impracticable. Whilst this may give liquidators more flexibility, obtaining approval from a committee of inspection or a meeting of creditors will likely be more time efficient and cost effective.

40. Here, the liquidators have not formally put a resolution to approve remuneration to a meeting of committees as it became apparent shortly before or at the meetings that such a resolution would not be passed. It is evident that approval from the committees will not be forthcoming and thus there is a failure to agree within the meaning of the chapeau to section 473(3)(b).

41. There is also evidence that the majority of members of the committee are not prepared to engage in further communication on the subject. This is unfortunate. As Barrett J observed in Onefone (2008), albeit in the slightly different context of a creditors voluntary winding up, where a committee of inspection is given a clear and positive role to play in fixing a liquidator’s remuneration, “The power to act must be considered to co-exist with a responsibility to act”: at [53]. Further, at [58]:

… it must be remembered that the committee of inspection must, of necessity, involve itself in future decisions about remuneration. The committee has a specific statutory function in relation to the matter. As a corollary, it has a specific statutory responsibility. It is not open to the committee to decide to vacate the field. It will be bound, for the future, to consider such matters as need to be considered in relation to liquidators’ remuneration and to make a conscientious attempt to reach a decision on each such matter. That responsibility is a statutory responsibility. It will continue while a committee of inspection remains in office.

42. Committees of inspection are, in many ways, in a better position to assess remuneration as they are intimately familiar with the tasks undertaken in the relevant period and have the ability, in the ordinary course of the liquidations, to pick up the phone or email the liquidators and query particular items or, in the context of an ongoing working relationship, seek discounts or write offs where thought appropriate.

43. Although the evidence on the practicalities of obtaining approval from a meeting of creditors was slight, it appears that the creditor body of Octaviar is largely the same as the membership of its committee of inspection and thus passing a resolution approving the liquidators’ remuneration is unlikely. The position with respect to the creditor body of Octaviar Administration is less clear. According to Mr Whittle, the liquidators have agreed and paid all priority creditors and employee entitlements in both liquidations, dealt with the claims of secured creditors, agreed the majority of unsecured creditor claims in both estates, paid two dividends to unsecured creditors of Octaviar and five dividends to unsecured creditors of Octaviar Administration. Given that the liquidations have been ongoing for more than a decade and creditors’ proofs of debt have been largely determined, I infer that it would be impracticable for the liquidators to convene a meeting of creditors as it is unlikely that creditors would attend simply to approve the liquidators’ remuneration. Thus I will proceed to determine the remuneration under section 473(b)(ii).

Events since

44. On 30 May 2019, the liquidators’ application for directions in respect of proofs of debt earlier mentioned at [9]-[10] was heard. In August 2019, Mr Fletcher and Mr Whittle swore affidavits in support of this application. On 5 September 2019, Octaviar Investment Notes, Octaviar Investment Bonds, the Public Trustee of Queensland and Challenger served the notice of objection to remuneration, comprising 18 pages, which I have considered further at [54]. On 23 September 2019, the Supreme Court of Queensland gave directions that the liquidators were justified in rejecting the proofs of debt of Octaviar Investment Notes and Octaviar Investment Bonds: Re Octaviar Limited (in liq) [2019] QSC 235. The proofs were rejected by the liquidators on 8 November 2019 and Octaviar Investment Notes and Octaviar Investment Bonds have lodged appeals against the rejection of the proofs.

44. On 10 March 2020, Mr Whittle swore a further affidavit addressing the notice of objection and the liquidators filed the application presently before the Court. The application and evidence was served on the objectors and the Australian Securities and Investments Commission (ASIC). On 16 March 2020, Gleeson JA ordered the liquidators to serve submissions on the objectors and ASIC. Directions were made for any affidavit evidence or submissions in response to be filed. There was no response from the objectors. ASIC advised that it would not seek to appear at the hearing. The objectors were provided with a link to the electronic court book. The application was heard on 6 April 2020.

45. In his second affidavit, Mr Whittle disclosed, that on 25 November 2019, the liquidators of Octaviar received show cause notices issued by ASIC under s 40-40(1) of Schedule 2 of the Corporations Act. Mr Whittle said that the notices sought written explanations in respect of events prior to the period for which remuneration was sought to be approved but referred to the notices for the purpose of full disclosure and to ensure that the Court was kept appraised of all matters relating to the liquidations. Mr Whittle said that the liquidators had provided detailed responses to ASIC on 21 and 23 December 2019 and, in the event that the Court wished to inspect the notices or responses, would make copies available. I requested copies of the documents, which were duly provided. I am satisfied that the show cause notices are entirely unrelated to the liquidators’ work which is the subject of this application. It is these show cause notices on which ASIC referred the liquidators to a Schedule 2 committee on 10 July 2020.

REMUNERATION OF LIQUIDATOR

47. A useful starting point is Barrett J’s statement in Onefone (2008) at [31]:

The starting point in any discussion of liquidator’s remuneration is the proposition that a liquidator in any type of winding up has a clear entitlement to remuneration and a clear entitlement to have his or her remuneration fixed. There is no expectation that a liquidator will act gratuitously. The right to remuneration is not subject to negotiation or to discretionary withdrawal. The only question that can ever be contentious is the amount of the remuneration.

48. Section 473(10) lists matters to which the Court must have regard in making such a determination.

In exercising its powers under subsection (3) …, 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.

49. The principles which govern determination of a liquidator’s remuneration are well summarised In the matter of Prime Space Property Investment Limited (in liquidation) [2016] NSWSC 1821 at [29]-[33] per Black J; In the matter of Sakr Nominees Pty Ltd (2017) 93 NSWLR 459; (2017) 118 ACSR 333; [2017] NSWCA 38 per Bathurst CJ at [54]-[60] (with whom Beazley P, Gleeson JA and Beach AJA agreed) and Barrett JA at [71]; and In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092 at [14]-[15] per Black J. In short:

1. A liquidator is entitled to reasonable remuneration for their services and bears the onus of establishing that the remuneration sought is fair and reasonable. 

2. The liquidator must lead evidence in sufficient detail to enable the Court to determine that question including an itemised account setting out the details of work, the persons who did the work, the time taken to perform the work and the remuneration and expenses incurred.

3. The Court must bring an independent mind to bear on the question whether the remuneration is fair and reasonable. 

4. Relevant considerations include the complexity of the liquidation and the level of responsibility and risk taken on by the liquidator.  

5. The time-costing based approach to remuneration as well as the percentage-based approach – which compares the percentage that a liquidator’s remuneration bears to the level of asset realisations achieved – are commonly used, and no particular approach is to be preferred.

6. There is a need for proportionality between the cost of the work done and the value of the services provided. Some work by a liquidator may not generate a return to creditors but is nonetheless necessary.

50. As to the last-mentioned point, Black J (on remitter from the Court of Appeal) explained in ReSakr Nominees Pty Ltd [2017] NSWSC 668 at [23]:

… 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…

51. Further, as Brereton J observed in In the matter of Dungowan Manly Pty Limited [2016] NSWSC 1346 at [12]:

… where creditors engage with liquidators and require them to expend time and effort in responding, that is time which liquidators cannot spend elsewhere and which draws them away from what might be other remunerative work. Investigations of potential causes of action, preparatory to prosecuting them will often be unproductive; but that does not mean that they are not to be remunerated.

52. In reviewing the liquidators’ claim for remuneration, I have adopted the approach of Black J in Sakr Nominees at [29]:

…I have not undertaken a line-by-line review of the bill narratives, but have reviewed them in a broad way, and considered whether they are consistent with [the liquidator’s] affidavit evidence and other evidence led in support of the claim for remuneration. I adopted the same approach in [Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund [2016] NSWSC 1292] at [58] and Gleeson JA took the same course in Re Banksia Securities Ltd [(in liq) (recs and mgrs. apptd) [2017] NSWSC 540] …at [48].

53. The same approach was also taken more recently in In the matter ofAberdeen All Farm Pty Ltd (in liquidation) [2020] NSWSC 770 at [36] and In the matter of JSMOT Pty Limited [2020] NSWSC 549 at [11]. Here, in addition to the affidavits, I have been provided with some 115 pages of WIP reports, considered further at [66], and six remuneration reports, considered further at [71]. I reviewed a sample of WIP entries for each activity code, being several entries for each member of staff.

THE OBJECTION

54. Before turning to the detail of the evidence, I will address the matters raised in the notice of objection as the complaints are, by and large, of a general and historical nature rather than in respect of the particular tasks for which remuneration is now sought to be approved. The notice of objection summarises complaints about the liquidators’ remuneration dating back to 2011. Criticisms were made about the terms on which legal proceedings against the secured creditor, Fortress Credit Corporation (Australia) II Pty Limited, were settled. As this occurred in 2015, I do not consider it necessary to delve into the intestacies of that litigation to consider whether the remuneration sought in respect of work done three years later is reasonable.

55. The objectors complain that the remuneration is unreasonable having regard to the combined amount paid for liquidators’ remuneration and expenses including legal costs. There is a well-recognised difference between ‘remuneration’ of the liquidator and ‘disbursements’ or ‘expenses’ that the liquidator incurs as the liquidator’s right to have expenses paid out of the assets of the company is a separate right and one that is “quite distinct from the right to remuneration”: Re Westpoint Finance Pty Limited (in liq) [2018] VSC 705 per Sloss J at [359] citing Kennards Hire Pty Limited v RMGA Pty Limited [2010] NSWSC 1387 at [70] per Barrett J. See also In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2004) 52 ACSR 279; [2004] FCA 1682 at [50] per Finkelstein J; explained In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8] per Brereton J; In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [14]-[15]; Robert P Austin, Austin & Black’sAnnotations to the Corporations Act (LexisNexis, July 2019) at [5.IPSC.60] citing Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; 16 ACLC 1653; GIS Electrical Pty Ltd v Melson [2001] WASC 314 at [55]; Re Stockford at [50]-[51]; Re Huxtable, Timeshare Resort Club Ltd (2010) 187 FCR 13; [2010] FCA 673 at [36]-[37]; Starpicket (No 2) cf. Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182; (1998) 16 ACLC 1156. The liquidators seek approval of their remuneration, not their disbursements. It is not particularly useful, when considering whether the remuneration is reasonable, to combine that remuneration with expenses.

56. The objectors considered that the remuneration and expenses of the Special Purpose Liquidator should be included when assessing the remuneration of Mr Fletcher and Ms Barnett. It is not clear to me how the remuneration and expenses of another liquidator assist in determining whether the remuneration sought by these liquidators is reasonable. If the tasks performed by the general purpose liquidators and their staff duplicated the tasks being performed by the Special Purpose Liquidator then that may be a good reason to disallow the remuneration sought unless, of course, there was a good reason for the general purpose liquidators attending to the same tasks: Westpoint Finance at [396] (albeit in relation to liquidators performing tasks also performed by their legal advisors). Here, however, there was no suggestion that Mr Fletcher and Ms Barnett had been unnecessarily replicating the work of the Special Purpose Liquidator.

57. As to proportionality, by a series of mathematical propositions, the objectors contended that asset realisations had been outstripped by liquidators’ remuneration, expenses and legal costs. I am not able, on the evidence before the Court, to check whether these mathematical propositions are correct save to say that the formula appears to contain a number of assumptions which are problematic. In particular, it is assumed that, in considering whether a liquidator’s remuneration is reasonable, their expenses and legal expenses and the remuneration and expenses of a Special Purpose Liquidator should be included. For the reasons already stated, I do not such an approach is consistent with authority.

58. The objectors suggested that an alternative measure for assessing proportionality was to assess the extent of the liquidators’ remuneration, expenses and legal costs relative to the amount paid by way of dividends to unsecured creditors. The concept of proportionality, as considered by the Court of Appeal in Sakr Nominees, required 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: at [55]. Further, at [57]-[58]:

… 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.

… 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 in the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work …

59. Whilst what is reasonable remuneration may depend on a range of factors –including the ultimate outcome obtained by the liquidator – as an indicia of the proportionality between the costs of the work done relative to the value of the services provided (Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144; [2011] VSC 380 at [63] per Davies J), as was observed by Matthews JR in In the matter of Nissand Pty Limited (in liq) [2019] VSC 280 at [112], “it is … too simplistic to view the remuneration claimed by a comparison with the assets realised by a liquidator or by the return to creditors”.

60. The objectors stated that they sought the assistance of the Court to instil rigour in the management of costs in the liquidations by not approving the current remuneration claims. Reference was made in the notice of objection to the deep industry experience of Mr Colwell, Mr Jenkins of Clayton Utz and Mr Terry. This was said to support the veracity of their opinion that the liquidators’ remuneration was unjustified. Such experienced individuals would also readily appreciate that, in the absence of evidence, the Court will not act on the basis of their assertions.

61. The only evidence filed in respect of the notice of objection is a further affidavit by Mr Whittle who has, in detail, addressed each of the complaints made by the objectors. In particular, Mr Whittle said that the liquidators took steps with the committees of inspection to manage costs including:

1. discounts on charge out rates;

2. not applying annual increases to Bentleys’ charge out rates;

3. agreed caps on certain work streams, either on a monthly basis or as a whole;

4. agreed budgets for certain work streams and reporting against those budgets;

5. engaging alternative law firms or transferring matters to a new law firm in order to address legal costs;

6. entering into speculative costs arrangements with law firms;

7. agreeing to hold liquidators’ fees in abeyance until completion of a particular work stream;

8. holding off actioning particular work streams at the request of the committees of inspection; and

9. writing off fees.

62. According to Mr Whittle, the committees of inspection have kept a tight oversight on the liquidators’ costs and have had material input into steps taken by the liquidators and the costs associated with those steps. Whilst in many instances the committees’ preference would have been for the liquidators to submit for approval work streams broken down into tasks and milestones with accompanying budgets prior to commencing the work, and subsequently reporting against milestones achieved and costs incurred, this form of budgeting and control was not always practical in circumstances where the liquidators were briefing solicitors to act in large pieces of commercial litigation. Nor was such an arrangement workable when the liquidators were dealing on a day-to-day basis with a complicated and ever changing liquidation, where rapid decision-making was required in order for the liquidators to fulfil their duties. In the absence of evidence to the contrary, or the inherent unreliability or unlikelihood of Mr Whittle’s evidence, I accept his evidence.

EVIDENCE

63. As mentioned, the liquidators rely on affidavits sworn by Mr Fletcher and Mr Whittle. Whilst the affidavits canvassed a number of events before the period for which remuneration is sought, I have focused on what the liquidators did in the period for which remuneration is sought.

64. Mr Fletcher explains that, given the nature and size of the liquidations, it has been necessary to have between six and 12 members of staff working on the liquidation, either part-time, full time or on a consultancy basis, depending on the tasks then being performed. Mr Fletcher has sought to arrange the staffing in the most efficient and cost effective way. Where possible, he has allocated senior roles to staff members below the seniority level of partner including, particularly, to Mr Whittle who is an associate director of the firm with 35 years relevant experience.

65. Mr Whittle has had a key management role in the day-to-day aspects of the liquidations subject to the oversight and supervision of the liquidators, particularly Mr Fletcher. Mr Whittle has mainly worked on these liquidations. Mr Fletcher considered this an appropriate way to proceed as it was desirable to have a single senior person with day-to-day conduct of liquidations and Mr Whittle’s charge out rate was less than that of the liquidators. Other members of staff have varying seniority from consultants, senior staff, intermediate staff, treasury and filing. The allocation of tasks in the liquidation has depended upon each staff member’s location, ability and experience and nature and complexity of the particular task.

WIP reports

66. Staff are required to record their time spent in a computerised time recording system, using six minute units. Each WIP entry contains seven pieces of information: the position of the person performing the task, their name, the date, the time spent, a narration for the task completed, the person’s hourly rate and the charge levied in respect of the task.

67. Each month, WIP reports are prepared. I have been provided with some 115 pages of WIP reports. The initial report is generated by a staff member, who reviews the report to correct any typographical or other obvious errors. The WIP report is then reviewed by Mr Whittle, who assesses whether the time that has been recorded by staff is commensurate with the nature of the work performed and if it has been allocated to the correct activity code. If, in the course of that review, Mr Whittle considers that a time entry is not reasonable, for example, because too much time has been spent on a non-complex task or because work has been performed by a more senior staff member where a more junior staff member could have performed the work, Mr Whittle notes the entry for review by the liquidators and suggests that the time be reduced to reflect the reasonable amount that he considers ought to be charged based on his experience. Mr Whittle also marks time to be written-off in the event that it has exceeded a budget previously agreed with the committees of inspection for particular work in that work stream. Mr Whittle then forwards the WIP report with his comments and proposed amendments to Mr Fletcher for review and approval.

68. The WIP report is then settled by Mr Fletcher, who considers Mr Whittle’s suggestions in respect of write offs or reductions and, where appropriate, approves these write offs and reductions or makes further writes off or reductions for entries which appear to have been erroneously charged or exceeded budgets. In respect of the remuneration for which approval is now sought, $14,026 has been written off in respect of Octaviar of which $783 related to “General” and the balance related to “Committees of Inspection”. A total of $91,659 has been written off in respect of Octaviar Administration of which $60,309.50 related to the 333 Capital proceedings, $3,979 related to “Administration” and the balance related to “Committees of Inspection”.

66. The objectors suggest that the fact that the liquidators agreed to write off some of the fees submitted to the committees of inspection “betrays the integrity and rigour of the process said to be undertaken … in assessing the appropriateness of the remuneration to be charged.” The fact that the liquidators were willing to write off costs led the objectors to assert that “there is a compelling conclusion that there are costs which have been borne by the creditors of [Octaviar Administration] and [Octaviar] which should not have been”. I suppose that is one conclusion that could be drawn.

67. The other conclusion, which I confess seems more likely, is that it is inherent in the nature of the process of applying to the Court – as in any application to the Court – that a liquidator will review their records again and more closely and more conservatively, as will the liquidators’ solicitor and counsel, which may lead to further re-consideration of aspects of the claim for remuneration. What the Court is asked to approve will likely be more refined that what may be placed before a committee of inspection at their regular meetings. But there is a cost inherent in this process too, which will likely ultimately be borne by creditors. One would hope that a well-functioning committee of inspection could resolve any imperfections in what is submitted for approval by constructive interaction with the liquidators before or at such meetings so that, overall, the remuneration, and the cost of seeking approval of it, is efficiently managed.

Remuneration reports

71. I have been provided with six remuneration reports submitted by the liquidators to the committees of inspection for approval. The remuneration reports summarise the work done for each of the work streams. The remuneration reports contain a declaration by the liquidators that they have undertaken a proper assessment of the remuneration claim in accordance with the law and applicable standards and are satisfied that the remuneration claimed is in respect of necessary work, properly performed in the conduct of the liquidation.

72. An executive summary then follows, setting out the total remuneration approved to date and the current remuneration approval sought for each work stream, describing the tasks attended to and detailing any fees which have been written off. Monthly caps, where applicable, are noted. Where a monthly cap has been breached, the liquidators draw attention to this fact and advise how they intend to deal with this, including whether they will write off the additional fees.

73. After describing the work performed, the remuneration report provides details of the calculation of remuneration by reference to the staff member who performed the task and the work streams on which they spent their time. The proposed method of remuneration is explained, being time based and hourly rates. Details of the hourly rates of each person working for the liquidators are given together with details of their experience. Finally, a statement of receipts and payments for the relevant remuneration period is provided.

Reasonableness

74. Mr Fletcher gave evidence that he was satisfied that the length of time spent by the liquidators and their staff was reasonably necessary for the nature of the work carried out; all of the work performed was carried out by professional staff who were appropriately qualified and experienced; all of the work was carried out in a timely manner to a consistently high standard and without unnecessary duplication; all of the work performed was reasonably necessary for the proper conduct of the liquidation; the hourly rates were reasonable having regard to the experience and qualifications of each staff member, the work performed, the nature and complexity of that work, the responsibility of each staff member in relation to the work which they performed, the costs incurred by Bentleys in performing the work, and the risks undertaken by the firm in conducting the work including, for example, funding aspects of litigation in the 333 Capital proceedings and ATO proceedings. The hourly rates charged by his staff were, according to Mr Fletcher, commensurate with market rates of firms of similar size and specialty as Bentleys.

75. In respect of the period for which approval of remuneration is sought, $1,332,695.93 has been realised for Octaviar and $2,725,296 has been realised for Octaviar Administration. If approved, the remuneration for Octaviar will amount to 27% of realisations during the period for which the remuneration is sought but 5.46% of realisations to date. For Octaviar Administration, the remuneration if approved will amount to 15% of realisations during the period for which approval is sought or 10.6% of realisations to date. Mr Fletcher says that, having regard to the complexity of the liquidations and the risks absorbed by Bentleys, these percentages (at least when compared to realisations to date) point to the reasonableness of the remuneration claimed to date.

Work performed by liquidator

76. Turning to each area of work by reference to activity code, in order of numerical significance, and combining for brevity the tasks done in both liquidations, the evidence is as follows.

ATO Garnishee

77. In respect of Octaviar, $120,381.50 is sought for eight months’ work. For Octaviar Administration, $47,227.50 is sought for 12 months’ work. Tasks allocated to this activity code included:

1. communicating with the ATO and its solicitors, the Australian Government Solicitor, regarding the ATO’s security and requests for an undertaking regarding dividend distributions;

2. discussing and considering potential courses of action in connection with the ATO’s security, both internally and with the liquidators’ solicitors, obtaining and considering counsel’s advice on the redemption and ancillary issues;

3. effecting the redemption of the ATO’s security including communicating with the ATO and the Australian Government Solicitor about the redemption, considering and formulating responses to the ATO and the Australian Government Solicitor;

4. work associated with bringing the ATO proceedings in the Supreme Court of Queensland including preparing affidavits and attending to discovery, attending court hearings and debriefing, attending to information requests from solicitors and counsel, considering the ATO’s points of claim and discussing with solicitors and counsel, considering and amending draft orders, detailed and regular communications with the liquidators’ solicitors, attending meetings with counsel, obtaining advice and considering advice from the liquidators’ solicitors;

5. considering and responding to a request by the ATO under Division 70 of the Insolvency Practice Schedule for a substantial number of documents in connection with the ATO proceedings, in connection with Octavier Administration’s assertion that Octavier’s proof of debt is flawed and overstated;

6. updating the committees and significant creditors about the ATO’s security and ATO proceedings; and

7. attending internal meetings regarding the ATO Proceedings and finalising file notes.

78. No particular complaint was made about this work stream by the objectors. The liquidators’ remuneration sought some $19,000 a month for work done in both liquidations on this matter, which appears to be a significant issue and complex. Having reviewed a sample of the WIP entries for this activity code, being several entries for each member of staff, I consider that time spent on the task described appears to have been reasonable and approve the remuneration sought without deduction.

Administration

79. In respect of Octaviar, $31,648.50 is sought for eight months’ work. For Octaviar Administration, $108,723 is sought for 12 months’ work after writing off $3,979. Tasks allocated to this activity code included statutory reporting; managing and reconciling bank accounts; managing investments; paying suppliers; general planning, budgeting, document management and filing; recording minutes of a meeting; updating filing and time recording systems to adequately manage ongoing matters; general correspondence; and maintaining online records.

80. Mr Whittle accepted that the fees allocated to administration were relatively high due to the size and complexity of the liquidations. Administration costs were higher for Octaviar Administration as that company maintained the records for the Octaviar group.

81. Treasury functions were particularly time consuming. Throughout the liquidations, the liquidators have held a significant amount of funds on behalf of the companies, presently some $80 million. The majority of the funds are held in various interest bearing deposit terms with a small amount in non-interest bearing accounts. These investments are updated and changed regularly to ensure that the investments remain commercially reasonable depending upon changing interest rate predictions. From time to time, the liquidators seek advice on appropriate investments.

82. Processing payments to suppliers also takes a significant amount of time. The invoices have to be reviewed to ensure they are correct, hardcopy paperwork is generated and checked by a senior employee before final approval by the liquidator, payment made and recorded. Regular invoices were quicker to review but invoices for legal fees are reviewed in greater detail as they were more varied and contribute to a larger proportion of costs. Legal fees are also checked for reasonableness against agreed budgets and for calculation errors. In the financial year ended 30 June 2019, 265 transactions were completed in respect of $2.4 million. Suppliers include IT providers for accounting and information servers, being both the companies’ servers prior to winding up and servers established after the companies went into liquidation.

83. Document management and filing is time consuming. Relevant email and hard copy correspondence to and from the liquidators and their staff are coded. The coding of documents involved one senior staff determining the correct filing code and the physical filing then being carried out by a junior staff. Given the complexity of the liquidation and the volume of documents, the filing procedure used is different from usual insolvency matters undertaken by Bentleys. As Octaviar Administration held all records for the companies prior to the commencement of the liquidation, the liquidators said that to “disentangle them from that state would be practically impossible.” Monthly bank reconciliations, quarterly Business Activity Statements (BAS) returns and half-yearly reports.

84. No particular complaint was made about this work stream by the objectors, beyond a historical complaint in September 2011. By my calculation, remuneration is sought for roughly $4,000 a month for Octaviar and $9,000 a month for Octaviar Administration. This is less than the monthly budgets approved for these companies several years ago. One would hope, of course, that administration costs have reduced as the liquidations have progressed towards finality.

85. Having reviewed a sample of the WIP entries for the “Administration” activity code, it appears that more junior staff have attended to more menial tasks, and have taken longer that I imagine a more senior member of staff would take, but this is consistent with such tasks being delegated to less experienced and thus less expensive staff members. I consider that time spent on the task described appears to have been reasonable and approve the remuneration sought without deduction.

Intercompany debt / Octaviar proof

86. For Octaviar Administration, $104,188 is sought for 12 months’ work in relation to the proof of debt lodged by Octaviar in the winding up of Octaviar Administration. As mentioned, Octaviar, through the Special Purpose Liquidator, claims it is owed at least $515 million but possibly up to $1.3 billion by Octaviar Administration. Octaviar’s proof of debt has been rejected in full but the rejection is subject to an appeal which is presently stayed. Work under this activity code involved correspondence, meetings and discussions with the Special Purpose Liquidator and his lawyers in seeking to agree a potential joint application to the Court regarding the intercompany debt, including seeking to agree a set of facts and questions for determination. Ultimately, these matters were not agreed.

87. According to Mr Whittle, the liquidators’ staff liaised with their solicitors and counsel regarding the intercompany debt and the Special Purpose Liquidator’s position. The liquidators’ staff obtained evidence in relation to the intercompany ledger as well as transactions involving Octaviar and Octaviar Administration not shown on that ledger. The liquidators’ staff also considered and discussed with the Octaviar Administration committee of inspection appropriate responses to correspondence from the Special Purpose Liquidator and prepared those responses. No particular complaint was made about this work stream by the objectors. The remuneration sought appears reasonable.

88. In addition, the liquidators have agreed with the committees of inspection to place a further $322,759.50 of WIP in relation to work carried out in respect of Octaviar’s proof of debt on hold. The liquidators propose to continue holding this WIP until proceedings issued by Octaviar and Octaviar Administration in the Supreme Court of Queensland, in which the liquidators seek declarations regarding the ATO’s garnishee notice and security (described at [12]), have been determined and communications with the Special Purpose Liquidator about Octaviar’s proof of debt recommence. I was not asked to approve this remuneration.

Creditors

89. In respect of Octaviar, $97,5910 is sought for eight months’ work. For Octaviar Administration, $19,315.50 is sought for 12 months’ work. Tasks allocated to this activity code included preparing for and attending meetings with creditors and preparing minutes of meetings; attending to communications with creditors regarding the continued adjudication of the Octaviar Investment Notes and Octaviar Investment Bonds proofs and other complex proofs; reviewing and adjudicating upon proofs of debt including the proofs of debt of another company within the Octaviar group, Sunleisure Group Pty Ltd (receivers and managers appointed), the Public Trustee of Queensland, Octaviar Investment Notes and Octaviar Investment Bonds.

90. The liquidators concluded adjudication of all unsecured claims other than those of Octaviar Investment Notes and Octaviar Investment Bonds. In particular, Sunleisure made a claim of approximately $17 million against Octavier. Adjudication of this claim involved a complex exercise of untangling intercompany accounts between Sunleisure and Octavier. The proof was ultimately rejected in full, and Sunleisure has not appealed that decision. For Octaviar Administration, the liquidators also adjudicated a proof of debt lodged by the Octaviar Leveraged Investment Trust for some $38 million. Legal advice was sought and staff prepared briefs of documents and briefing notes for creditors and legal advisers and reviewed documents.

91. Staff continued to monitor and calculate potential dividend outcome scenarios consequent upon resolutions, including calculating potential dividends depending upon actions taken by the liquidators. Staff resolved issues in connection with admitted claims to effect payment of dividends where there was uncertainty about the entities seeking receipt of the funds. Time was spent in internal discussions and communications regarding the potential dividend outcome scenarios; preparation of equalising dividends for admitted proofs and additional distribution analysis; examining a potential shareholder class action; attending to various creditor and shareholder queries and other related communications; discussions with legal advisors and the committee on the Octaviar Investment Notes and Octaviar Investment Bonds proofs; collation and review of documentary evidence to support various creditor claims; obtaining advice and consultation with internal and external advisors regarding various creditor claims; correspondence with creditors regarding proofs of debt, including requests for further information and documents, and unclaimed dividend amounts; briefing and attending to updates from legal adviser regarding the claim made by Sunleisure; internal consultation regarding the tax funding component of the claim made by Sunleisure; attending to correspondence from creditors' legal representatives, including representatives of Sunleisure, Octaviar Investment Notes and Octaviar Investment Bonds; considering additional supporting material provided in creditor claims; conferring with legal advisors regarding a potential application for judicial advice regarding Octaviar Investment Notes and Octaviar Investment Bonds claims; and reviewing updated 'costs' proof from the Public Trustee of Queensland, admitting the claim and paying a “catch-up” dividend.

92. No particular complaint was made about this work stream by the objectors. The remuneration sought appears reasonable for the work done.

Committees of Inspection

93. In respect of Octaviar, $83,952.50 is sought for eight months’ work after writing off $13,243. For Octaviar Administration, $94,696 is sought for 12 months’ work after writing off $37,367. Tasks allocated to this activity code included attending committee of inspection meetings and internal meetings regarding committee matters; communications with committee members including calling meetings and circulating resolutions and minutes; preparing agendas for meetings; preparing detailed responses to committee resolution queries on key matters; preparing reports for committee members including dashboard reports and ad hoc analysis as requested; and considering a draft deed poll and confidentiality deed for the proposed addition of a representative of Deutsche Bank as an observer at committee meetings.

94. No particular complaint was made about this work stream save that the objectors complain that the liquidators seek approval of $8,653 for Octavier and $7,947 for Octavier Administration to respond to Mr Colwell’s letter of 28 November 2018, as mentioned at [31]-[32]. The inclusion of a liquidator’s fees associated with preparing a remuneration report and seeking approval of his remuneration is permissible and consistent with the authorities: Deputy Commissioner of Taxation v Starpicket Pty Limited (No 2) [2013] FCA 699 at [54]; Re Earning Pty Limited (in liq) [2019] VSC 152 at [52]. As the means by which the liquidators had historically gained approval of their remuneration was from the committees of inspection, it seems reasonable for the liquidators to have spent some time addressing the detailed queries raised by the committees in order to obtain approval.

95. The evidence on this application does not support a finding that these costs were incurred due to inadequacies in the liquidators’ time recording systems. Rather the evidence is to the contrary. Mr Whittle says that he did not, in preparing the firm’s detailed response to Mr Colwell’s letter, discover any inadequacies in Bentleys’ time recording system nor that staff were not properly recording their time. I consider the remuneration is reasonable for the work done.

Stella Trust Monies

96. In respect of Octaviar, $16,227.35 is sought for eight months’ work. For Octaviar Administration, $16,174.65 is sought for 12 months’ work. The time allocated to the Stella Trust Monies activity code related to the issue of how the remaining proceeds of sale of “Stella”, held in trust by solicitors pursuant to a Controlled Monies Direction, would be allocated between Octaiver and Octavier Administration. In February 2008, Octavier sold a 65% interest in “Stella” for $400 million and in June 2009 Octavier’s deed administrators sold the remaining 35% interest for $3.2 million. Work involved liaising with the solicitors that held the monies; compiling briefing notes and obtaining legal advice; obtaining agreement from the committees as to the appropriate division of funds between the companies; corresponding and meeting with legal advisers regarding documents and a potential court application; collating relevant documents; reviewing and amending an affidavit on the issue. No particular complaint was made about this work stream in the objection. I approve the remuneration sought, which appears reasonable.

333 Capital

97. For Octaviar Administration, $14,635.50 is sought after writing off $60,309.50. The remuneration sought is for work from 1 July 2018 to 31 August 2018. Further work was carried out from 1 September 2018 to 31 December 2018 but this has been written off as it exceeded the budget previously agreed with the committee for alternative dispute resolution (ADR) processes.

98. The time allocated to this activity code including preparation for court hearings; reviewing relevant documents and analysis of potential claim; discovery of supporting documentation; attending to legal advisor updates; liaising with the liquidators’ solicitors; liaising and meeting with potential funders; calculating and preparing cash and loss analysis; attending to costings review and budgets; participation in ADR; continued communications with legal advisors on litigation funder updates and applications; considering and attending to non-disclosure agreement; reviewing ADR submissions; internal discussions of next steps in ADR process; preparing communication to committee regarding the ADR process; and considering, amending, reviewing and executing the deed of settlement and release.

99. The liquidators have also written off their costs in connection with the 333 Capital proceedings, being $408,335.50. As the committees of inspection were not agreeable to progressing the 333 Capital proceedings without third party funding, and the liquidators were unable to secure that funding and so settled the proceedings on the basis that each party bear their own costs, the liquidators have written off their costs in connection with the proceedings other than some costs associated with pursuing ADR.

100. The objectors complain that the creditors have already incurred substantial costs in respect of the 333 Capital proceedings, said to eclipse the amount written off by the liquidators. Whilst the liquidators agreed to pursue a non-binding evaluation process pursuant to which John Sheahan QC would provide a neutral evaluation of the claim, the liquidators are said to have failed to manage the neutral evaluation process in conjunction with the conduct of the 333 Capital proceedings such that a valuable opportunity was lost to settle proceedings on favourable terms or to secure litigation funding. By discontinuing the proceedings before Mr Sheahan’s report was provided, it is said the liquidators destroyed the value of the claim against 333 Capital. In the absence of evidence supporting the objector’s contentions, I am not prepared to accept the veracity of these complaints. The remuneration appears reasonable for the work undertaken.

General

101. In respect of Octaviar, $8,931 is sought for eight months’ work after writing off $783. For Octaviar Administration, $13,671.50 is sought for 12 months’ work. Work allocated to the General activity code included reviewing and formatting tables, reports and other correspondence; communicating with a legal resourcing provider; general matter planning and progress reports; preparation of cost estimates on work streams and other tasks of a general nature when required. For Octavier Administration, this work also included preparation of proofs of debt in relation to Octaviar group subsidiaries; preparing and considering a new committee reporting framework; work carried out at the request of the liquidator of Erskine House Development Pty Ltd (in liquidation), as Octaviar Administration maintains the records of the entire Octaviar group and the information was needed to resolve a significant issue in that liquidation. No particular complaint was made about this work stream in the objection. The remuneration appears reasonable for the work undertaken.

Debt – Octaviar Investment Holdings No 3 Pty Ltd

102. For Octaviar Administration, $1,776.50 was sought for work assisting ASIC in its investigations in respect of Octaviar Investment Holdings No 3 Pty Ltd and its former director. These investigations were carried out pursuant to notices issued by ASIC to the liquidators and one of their consultants under the Australian Securities and Investments Commission Act 2001 (Cth). Work was carried out to assist the liquidator of Octaviar Investment Holdings No 3 in dealing with the competing claims of ASIC and Mr Anderson. Further, the liquidators liaised with the liquidator of Octaviar Investment Holdings No 3 regarding the proof of debt submitted by Octaviar Administration in the liquidation of Octaviar Investment Holdings No 3 and in respect of other creditor claims made to the liquidator of Octaviar Investment Holdings No 3. No particular complaint was made about this work stream in the objection. The remuneration sought appears reasonable.

Debt – Octaviar Financial Services

103. For Octaviar Administration, $414.50 was sought for work connected with the debt due to Octaviar Administration from Octaviar Financial Services Pty Ltd (in liquidation), including contacting the liquidator of that company to enquire about the status of the liquidation and dividend timeline; and internal discussions on this issue. No particular complaint was made about this work stream in the objection. The remuneration sought appears reasonable.

104. In the result, I have approved the liquidators’ application for approval of their remuneration without deduction. One expects, of course, that as these long running liquidations draw to a close the liquidators will ensure that the time spent by their staff is carefully supervised so that only that which is necessary is done and staff are re-allocated to other liquidations as soon as practicable.

orders

105. For these reasons, I make the following orders:

1. Pursuant to section 473(3)(b)(ii) of the old Act (as that term is defined in section 1551 of the Corporations Act 2001 (Cth), the First Plaintiffs are entitled to receive remuneration as liquidators of the Second Plaintiff for the period 1 July 2018 to 28 February 2019 in the amount of $358,731.85 (plus GST).

2. Pursuant to section 473(3)(b)(ii) of the old Act, the First Plaintiffs are entitled to receive remuneration as liquidators of the Third Plaintiff for the period 1 March 2018 to 28 February 2019 in the amount of $420,822.65 (plus GST).

3. The costs of and incidental to this application are costs in the winding up of the Second and Third Plaintiffs, to be paid pro rata from the funds of the Second Plaintiff and the Third Plaintiff in accordance with the amount of remuneration approved pursuant to Orders 1 and 2.

4. Pursuant to section 7 of the Court Suppression and Non-Publication Orders Act 2010 (NSW), until the end of the liquidation of the Second and Third Plaintiffs or by such earlier time that the Court orders:

1. the documents appearing at Tab 8 of the court book delivered to Justice Rees’ chambers for the purposes of the hearing of the Interlocutory Process filed on 10 March 2020 (Court Book), comprising an unredacted version of Tab 17 of Exhibit 1 to the affidavit of John Carmel Whittle sworn 12 August 2019;

2. the documents appearing at Tab 9 of the Court Book, comprising unredacted versions of Tabs 12, 13, 15, 16, 18, 19, 20 and 22 of Exhibit 2 to the affidavit of John Carmel Whittle sworn 10 March 2020; and

3. the documents referred to in paragraph 27 of the affidavit of John Carmel Whittle sworn 10 March 2020, as emailed to the Associate to Rees J on 6 April 2020,

are not to be published and/or accessed except pursuant to an order of the Court (Confidential Documents).

5. The Confidential Documents held by the Court are to be made available for collection by the solicitors for the Plaintiffs at such time as is advised by the Associate to Rees J, and are to be held by those solicitors until the conclusion of the liquidations of the Second and Third Plaintiffs.

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