Re Say Enterprises Pty Ltd

[2018] NSWSC 396

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396
Hearing dates:	30 October 2017
Date of orders:	29 March 2018
Decision date:	29 March 2018
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Remuneration reduced to $60,500, final accounts dispensed with and release granted.
Catchwords:	CORPORATIONS – receivers – remuneration – accounts - release
Legislation Cited:	(CTH) Corporations Act 2001, ss 420, 425 (NSW) Uniform Civil Procedure Rules 2005, r 26.4, 26.5
Cases Cited:	Anderson Group Pty Ltd; Mann v Anderson (2002) 20 ACLC 1607; [2002] NSWSC 764 Banksia Securities Limited, Re [2017] NSWSC 540 Brenner v Rose [1973] 1 WLR 443 Corporate Affairs Commission v Smithson [1984] 1 NSWLR 547 Custom Card (NSW) Pty Limited, Re [1979] 1 NSWLR 241 Davy v Gronow (1845) 14 LJ Ch 134 Deputy Commissioner of Taxation v Starpicket Pty Limited (No 2) [2013] FCA 699 Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 GDK Financial Solutions Pty Ltd, Re (2006) 236 ALR 699 Hoskins v Campbell [1869] WN 59. Ide v Ide (2004) 184 FLR 44; [2004] NSWSC 751 Idylic Solutions Pty Limited, Re (2016) 115 ACSR 581; [2016] NSWSC 1292 Interior Marble Pty Ltd v Mondo Stone Pty Ltd [2004] NSWSC 981 IRC v Hoogstraten [1985] QB 1077; [1984] 3 All ER 25; [1984] 3 WLR 933 Ireland v Eade (1844) 7 Beav 55 Kerr, in the matter of Angel’s Castle Pre-School Pty Limited (in liq) (No 2) [2012] FCA 57 Kraft v Kupferwasser (1991) 23 NSWLR 236 Manchester and Milford Railway Co, Re; Ex parte Cambrian Railway Co (18 Re 80) 14 Ch D 645 Martyniuk v King [2002] VSC 388; (2002) 43 ACSR 41 Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) [2006] NSWSC 4 Nangel v Lord Fingal (1824) 1 Hog 142 Nieman v Nieman (1889) 43 Ch D 198. Parker v Dunn (1845) 8 Beav 497 Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2015] FCA 613 Richardson v Ward (1822) 6 Madd 266; 56 ER 1092 Rondahl, Re; Henderson v Executor Trustee Australia Limited (2005) 226 ALR 475; [2005] SASC 477 Sakr Nominees Pty Ltd, Re [2016] NSWSC 709 Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 343 ALR 524; (2017) 118 ACSR 333; [2017] NSWCA 38; [2017] NSWCA 38 Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; [2015] FCAFC 137 Tewart v Lawson (1874) LR 18 Eq 490 Timeshare Resort Club Ltd (in liq), Re (2010) 187 FCR 13; [2010] FCA 673 Tonks, in the matter of PWG Holdings Pty Ltd (in liq) (No 2) [2017] FCA 893 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 Wenkart v Pantzer [2005] FCA 1572 Windschuegel v Irish Polishes Ltd [1914] 1 Ir R 33 Wine National Pty Limited, Re [2016] NSWSC 4 Yunghanns v Candoora No 19 Pty Ltd [2000] VSC 387
Texts Cited:	Walton R, Kerr on the Law and Practice as to Receivers and Administrators (17th ed, 1989) Daniell’s Chancery Practice (7th ed, 1901)
Category:	Principal judgment
Parties:	Yosi Tangi (P) Say Enterprises Pty Ltd (D1) Stav Marie Berrebi (D2) Alon Simon (D3) NSI Retail Pty Ltd (D4) Antony Resnick and David Solomons (As)
Representation:	Counsel: D. Krochmalik (As) R. Notley (Ds)     Solicitors: Chapman Thackeray Law (As) Hall & Wilcox (Ds)
File Number(s):	2017/222680

Judgment

1. Before the court is an application by Antony Resnick and David Solomons, who were appointed receivers and managers of the first defendant company Say Enterprises Pty Ltd on 10 August 2017 and were discharged on 20 September 2017, for approval of their remuneration, dispensation with the requirement to pass final accounts, and an order for their release.

Background

2. The plaintiff Yosi Tangy, the second defendant Stav Marie Berrebi and the third defendant Alon Simon each held one third of the issued shares in the company, which operates a retail cosmetic business under the trade name “Forever Flawless Australia” from leased premises at Westfield Miranda.

3. On 24 July 2017, Mr Tangy instituted proceedings for oppression, in which he also alleged that there had been various breaches by Ms Berrebi and Mr Simon of their statutory and fiduciary duties as directors. The fourth defendant NSI Retail, of which Ms Berrebi is the sole director and shareholder, was joined as the alleged recipient of funds that were said properly to belong to Say Enterprises. On 26 July 2017, the Court made interlocutory freezing orders, and on 10 August 2017, upon a further interlocutory application - it appearing that the freezing orders had been ineffective to achieve their purpose, in that a sum of about $180,000 had been transferred to BST Management Group Pty Limited - BST was joined as fifth defendant, and Messrs Resnick and Solomons were appointed receivers and managers of Say Enterprises, without security, until 15 August 2017. On 15 August, the Court ordered (by consent) that the appointment continue until 21 August 2017, and on 21 August (again by consent) until 25 September 2017.

4. On 7 September 2017, the receivers applied by interlocutory process for directions, seeking to have conferred on them the powers referred to in Corporations Act, s 420(2), and other relief. That application was returnable on 11 September, when directions for preparation for its hearing were made; but before it came on for hearing, the substantive dispute between the shareholders was resolved, one consequence of which was that on 20 September 2017, orders were made by consent dismissing the plaintiff’s originating process, vacating the freezing orders, discharging the receivers, and dispensing with the requirement that they prepare and file interim accounts. Orders were also made that the receivers prepare and file final accounts within 14 days; transfer into the company’s bank account (within 2 business days) the funds held by them for the company, except for $150,000 which they were to retain pending the fixing of their remuneration; and file and serve an amended interlocutory process and affidavit evidence relating to their remuneration. Provision was made for the defendants to file and serve objections in respect of the receivers’ remuneration claim, for the receivers to file and serve evidence in response to any objections, and for the adjournment of the proceedings to 30 October 2017 for hearing of the remuneration application.

5. By their amended interlocutory process of 3 October 2017, the receivers seek an order that their remuneration be approved and fixed in the sum of $85,675.26 plus GST (being a total of $94,242.79 inclusive of GST), dispensation with the requirement to pass final accounts, and an order for their release. The plaintiff, who as a result of the settlement of the substantive proceedings has no further interest in the company, did not oppose the application. However, in respect of remuneration and a release (though not in respect of dispensation with the requirement for final accounts), the application was opposed by the defendants.

Remuneration

6. The remuneration of court-appointed receivers is provided for by (NSW) Uniform Civil Procedure Rules 2005, r 26.4, which provides that a receiver is to be allowed such remuneration (if any) as may be fixed by the Court. Founding on what Young CJ in Eq said in Ide v Ide,[1] but drawing on the qualifications expressed in later cases,[2] the relevant principles may be restated as follows:

   1. (2004) 184 FLR 44; [2004] NSWSC 751.

   2. Wenkart v Pantzer [2005] FCA 1572 (Branson J); Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) [2006] NSWSC 4 at [9] (Barrett J), Anderson Group Pty Ltd; Mann v Anderson (2002) 20 ACLC 1607; [2002] NSWSC 764 at [12] (Barrett J); Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; 343 ALR 524; 118 ACSR 333; [2017] NSWCA 38 (Bathurst CJ, Beasley P, Gleeson JA, Barrett AJA, Beach AJA); Re Banksia Securities Ltd [2017] NSWSC 540 at [37]-[46] (Gleeson JA).

1. A receiver is entitled to the costs, charges and expenses properly incurred in the discharge of the receiver’s ordinary duties, or in the performance of extraordinary services that have been sanctioned by the Court.

2. The ultimate question is what amount of remuneration is ‘reasonable’, and this involves considering whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and whether the amount claimed for it is a fair and reasonable reward for it. The objective is to award a sum or devise a formula which will reasonably and fairly compensate the receiver for the time and trouble expended in the execution of his or her duties and the responsibility he or she has assumed.

3. The receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them.

4. Remuneration may be allowed on the basis of a fixed salary, a commission on receipts, or a quantum meruit having regard to the time, trouble and responsibility involved. It is a matter for the Court to determine what basis is appropriate in the particular case, having regard to the principle that the remuneration must be reasonable.

5. If a time-based approach is adopted, the Court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work. The Court will usually act on time sheets created in the receiver’s office, provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades on his or her staff.

6. By analogy, the task involves consideration of the matters referred to in Corporations Act, s 425(8), which applies to receivers appointed under an instrument,[3] namely:

   3. Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; [2015] FCAFC 137 (Besanko, Middleton and Beach JJ); Re Wine National Pty Limited [2016] NSWSC 4 at [15] (Black J); Re Banksia Securities Limited [2017] NSWSC 540 at [41] (Gleeson JA).

(a) the extent to which the work performed by the receiver was reasonably necessary;

(b) the extent to which the work likely to be performed by the receiver is likely to be reasonably necessary;

(c) the period during which the work was, or is likely to be, performed by the receiver;

(d) the quality of the work performed, or likely to be performed, by the receiver;

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the receiver;

(f) the extent (if any) to which the receiver was, or is likely to be, required to deal with extraordinary issues;

(g) the extent (if any) to which the receiver 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 receiver;

(i) whether the receiver was, or is likely to be, required to deal with:

(i) one or more other receivers; or

(ii) one or more receivers and managers; or

(iii) one or more liquidators; or

(iv) one or more administrators; or

(v) one or more administrators of deeds of company arrangement;

(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 receiver in performing the work; and

(ii) whether the total remuneration payable to the receiver is capped;

(l) any other relevant matters.

7. Many of those factors - in particular, pars (d)-(e) and (g)-(h) - have as their unifying theme the concept of proportionality (being the relationship of the work done and the remuneration claimed to the value of the estate), which is an important consideration in determining reasonableness. [4]

8. It will rarely be appropriate for a Judge to review a decision of a Registrar on remuneration on an item-by-item basis.

9. In respect of disbursements, no Court approval or specific order is necessary in the absence of a challenge, although receivers should scrutinise them to ensure that they are reasonable and properly payable,[5] and the Court has an inherent jurisdiction to review receivers’ disbursements as they are officers of the Court. [6] However, a receiver may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement. [7]

   4. Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137 at [31] (Besanko, Middleton and Beach JJ);; Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; 343 ALR 524; 118 ACSR 333; [2017] NSWCA 38 at [55] (Bathurst CJ).

   5. Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at [100-101] (Kennedy and Ipp JJ); Re Timeshare Resort Club Ltd (in liq) (2010) 187 FCR 13 at 20 [36]-[37]; [2010] FCA 673 (Barker J); Re Wine National Pty Ltd [2016] NSWSC 4 at [12] (Black J).

   6. Deputy Commissioner of Taxation v Starpicket Pty Limited (No 2) [2013] FCA 699 at [21] (Gordon J).

   7. Re Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8]; although that was a case about a liquidator, there is no reason why the same principles should not apply.

The claim

7. As well as their remuneration claim for $85,675.26 (plus GST), the receivers also seek a direction that they would be justified in paying the disbursements they have incurred in respect of legal fees, search fees, copying and insurance fees. By far the most significant disbursement, and the only one calling for particular scrutiny, is legal expenses which up to 20 September 2017 totalled $35,831.64 (including filing and counsel’s fees); this does not include the costs associated with the amended application now before the Court, relating to the remuneration claim. To the extent that the defendants oppose the payment of one or more of the receivers’ disbursements (a matter which is not entirely clear), the receivers seek a specific order from the Court that the receivers be directed to pay the various amounts claimed for legal fees, search fees, copying and insurance fees.

8. The remuneration claim is calculated on a time-costed basis, at the rates disclosed in the consent to act provided to Mr Tangy at the time of the appointment, and is comprised of the following main areas of work:

Assets:        $8,879.00

Creditors:        $681.50

Trade On:       $13,963.00

Investigations:    $43,963.76

Administration:    $18,188.00

9. As described in Mr Solomons’ affidavits and summarised in their counsel’s submissions, the work performed by the receivers involved the following:

1. securing the company’s bank accounts;

2. trading the business of the company from its shop premises in Miranda (including conducting a stocktake; redirecting access to the receivers for the company’s point of sale records, customer database, website and other records; re-opening the company’s premises; and supervising Mr Simon’s ongoing management of the business;

3. extensive efforts to obtain information about the company from the parties (and their legal representatives) and the company’s accountant Yoav Oren, including by utilising the services of a forensic information technology expert and liaising with Google (the host server of the company’s email accounts);

4. reviewing the company’s financial statements, engaging with key stakeholders (such as the Australian Taxation Office) and making payments to outstanding creditors (including the lessor of the company’s premises and the provider of its telecommunication services);

5. obtaining appropriate insurances and workers’ compensation premiums;

6. conducting extensive negotiations with the parties and their legal representatives, including as to the trading of the company’s business, and with respect to attempts to resolve the dispute between the parties;

7. investigations into the status of the company’s ‘contractors’ (including their remuneration, visa status, whether they were properly employees), the sales practices of the company, and its compliance with workplace and superannuation laws;

8. considering the possible sale of the business of the company; and

9. filing accounts with the Australian Securities and Investments Commission (ASIC).

10. Further, as has been mentioned, the receivers made an application to the Court for directions in respect of certain steps proposed to be taken in the receivership, and retained their own lawyers for that purpose, and also in relation to aspects of the administration including the sales practices and business operations of the company; negotiations with the parties to the proceedings; dealings with the company’s creditors and stakeholders; the application for directions; and approval of the receivers’ remuneration. In the course of the proceedings, Mr Solomons (on behalf of the receivers) has made three affidavits, the first of which (made on 7 September 2017) was in effect a report on the receivership to date, while the second and third related to the remuneration application.

11. The applicants submitted that having regard, by analogy, to the matters in s 425(8), the work was properly performed by the receivers in the due course of the receivership; it was reasonable to carry it out; and the amount claimed was a fair and reasonable reward for the work. Mr Solomons, who is an experienced insolvency practitioner, deposed that the time spent reflects the work that was required to be undertaken in respect of the receivership, and that the work was performed in an efficient manner; he also deposed that the work was carried out by persons with the appropriate level of seniority, whose charge-out rate was proportional to the level of the complexity of the work that was performed. Mr Solomons also gave evidence that the hourly rates charged by him and his staff members are reasonable and commercially competitive, and that in his opinion the amount of the remuneration and its calculation is consistent with the Australian Restructuring Insolvency & Turnaround Association (ARITA) code and is, when viewed overall, fair and reasonable.

12. Although it has been said that the opinion of the insolvency practitioner to this effect is a relevant matter to which the Court should have regard,[8] the evidence of a claimant for remuneration in those terms is more than a little self-serving. In my judgment, while requiring a practitioner to depose to those matters serves the purpose at least of requiring that attention be directed to those matters, its self-serving nature means that in the face of contention it cannot be afforded a high degree of weight. However, at least generally speaking, the challenge to the remuneration claim was not founded on any dispute as to the reasonableness, according to professional standards or otherwise, of the rates charged by the receivers for their time. Nor was it submitted that, in the context of this appointment, a commission or percentage based approach should be adopted. The essential issue is whether a substantial part of the work done by the receivers for which they claim remuneration was not reasonably performed pursuant to their appointment. In this respect, the real issues are whether the relevant work done was reasonably undertaken having regard to the nature and object of the appointment. In addition, the defendants raised a number of more specific objections to particular items.

    8. Re Idylic Solutions Pty Limited (2016) 115 ACSR 581; [2016] NSWSC 1292 at [57] (Black J).

13. The receivers were appointed interim receivers and managers of the assets and undertaking of the company. The interim nature of the appointment is implicit in the order which appointed them until a named date – initially a period of 6 days only - and was extended, twice, for a limited and defined interval, so that even when last extended the appointment would have been for a period of 46 days from the date of the original appointment; and it was abridged, by the agreed discharge of the appointment, to a total period of 41 days.

10. Although the order of appointment did not contain a list of powers, it did not have to: (CTH) Corporations Act 2001, s 420, has the effect that absent any express limitation the receivers had all the powers referred to in that section:

(1) [Powers generally] Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.

(2) [Specific powers] Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver's powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed:

(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and

(b) to lease, let on hire or dispose of property of the corporation; and

(c) to grant options over property of the corporation on such conditions as the receiver thinks fit; and

(d) to borrow money on the security of property of the corporation; and

(e) to insure property of the corporation; and

(f) to repair, renew or enlarge property of the corporation; and

(g) to convert property of the corporation into money; and

(h) to carry on any business of the corporation; and

(j) to take on lease or on hire, or to acquire, any property necessary or convenient in connection with the carrying on of a business of the corporation; and

(k) to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation; and

(m) to draw, accept, make and indorse a bill of exchange or promissory note; and

(n) to use a seal of the corporation; and

(o) to engage or discharge employees on behalf of the corporation; and

(p) to appoint a solicitor, accountant or other professionally qualified person to assist the receiver; and

(q) to appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person; and

(r) where a debt or liability is owed to the corporation — to prove the debt or liability in a bankruptcy, insolvency or winding up and, in connection therewith, to receive dividends and to assent to a proposal for a composition or a scheme of arrangement; and

(s) if the receiver was appointed under an instrument that created a security interest in uncalled share capital of the corporation:

(i) to make a call in the name of the corporation for the payment of money unpaid on the corporation's shares; or

(ii) on giving a proper indemnity to a liquidator of the corporation — to make a call in the liquidator's name for the payment of money unpaid on the corporation's shares; and

(t) to enforce payment of any call that is due and unpaid, whether the calls were made by the receiver or otherwise; and

(u) to make or defend an application for the winding up of the corporation; and

(w) to refer to arbitration any question affecting the corporation.

15. However, that the receivers are given all those powers does not mean that it is necessarily reasonable to invoke them, especially in the context of an interim appointment. An interim receiver – and an interim receiver and manager – is not equivalent to a provisional liquidator. The function of a receiver is to serve as a repository of the assets to which the receiver is appointed. The receiver’s function is to receive the property in issue. A manager admittedly has more extensive functions, as Needham J observed in Re Custom Card (NSW) Pty Limited:[9]

There is no doubt that a receiver and manager has greater powers and duties than a receiver: see, for example, Re Manchester & Milford Railway Co; Ex parte Cambrian Railway Co (1880)14 Ch D 645 at pp. 653, 659; Harold Meggitt Ltd v Discount & Finance Ltd (1938) 56 WN (NSW) 23; Marshall v South Staffordshire Tramways Co [1895] 2 Ch 36; Re Newdigate Colliery Ltd [1912] 1 Ch 468. The essential distinction is that the receiver and manager has the power to carry on the business of the company, whereas the receiver has not.

9. [1979] 1 NSWLR 241 at 248.

16. To like effect, in Re Rondahl; Henderson v Executor Trustee Australia Limited, [10] Debelle J said:

[43] There is a distinction between a receiver and a receiver and manager. The latter has the power to manage the property in respect of which he has been appointed: Re Manchester & Milford Railway Co ; Ex parte Cambrian Railway Co (1880) 14 Ch D 645 per Jessel MR at 653; Re Newdigate Colliery Ltd [1912] 1 Ch 468 at 472. An administrator, like a court-appointed receiver, is a caretaker of the assets until the persons entitled to them are ascertained: Bevan at 272. The powers of each are more limited than those of a receiver and manager.

10. (2005) 226 ALR 475 at 491; [2005] SASC 477.

17. However, Corporations Act, s 420(2)(h), largely removes any distinction. What is important is that while the function of “management” involves being more than a mere repository, it does not alter the fundamental purpose of the appointment, which is the preservation of the property (relevantly, the business of the company). Thus, the essential function of an interim receiver/manager remains the preservation of the status quo. [11]

    11. Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 at 383-4 (Street J).

18. Unlike a liquidator, a court-appointed receiver – especially an interim one - is not (at least absent specific direction) required or expected actively to identify the property to be collected and received, nor (as Waddell J, as the later Chief Judge then was, explained in Corporate Affairs Commission v Smithson) to conduct investigations (emphasis added):[12]

Where a receiver is appointed in other circumstances, if a party to the proceeding has been directed to deliver up property to the receiver and refuses to do so, the receiver should report the refusal to the solicitor of the party having the conduct of the proceedings who should then take the necessary steps to enforce delivery up: see Kerr on Receivers, 15th ed (1978) at 173. If property which the receiver is entitled to receive is in the possession of a person not a party to the proceedings he may, with the leave of the court, take proceedings for its recovery in the name of the party who would be entitled to sue apart from his appointment: Kerr (at 181). These rules reflect the general position of a receiver which is to receive the property which is in contest in the litigation. It is not his duty actively to identify the property which he is to collect and receive. This must be done between the parties to the litigation. The receiver is not an agent of either of the parties and it would, I think, be contrary to his usual position that he should be required to investigate the affairs of one of them virtually as the agent for the other.

12. Corporate Affairs Commission v Smithson [1984] 3 NSWLR 547 at 553-4.

19. Moreover, a receiver should not intermeddle in any litigation between the parties, and if he or she does so, will not be allowed the costs of a motion for such a purpose. [13] Applications to the court should as a general rule be made by the persons beneficially interested, and not by the receiver; if an application to the court becomes necessary, the receiver should in the first instance ask the party having carriage of the order, or if necessary some other party, to make the application. If no application is made, and no proper means taken to address the receiver’s difficulty, or if the matter is so urgent that it cannot await applying to the parties, then receiver may himself or herself make the application and would in that event be entitled to costs. [14] There are powerful reasons for adhering to this well-established rule: first, so that the receiver remains at arm’s length from the litigation; and secondly, so that it is a party, and not the property, that at least in the first instance is charged with the costs of an application. This notion too is reflected in the judgment of Waddell J in Smithson:[15]

There is, I think, a further reason why an application of the present kind should have been made by the Commission and not by the receiver. It is necessarily an application of a kind likely to be resisted. If such an application is made by the receiver and it proves to be unsuccessful he would, in the ordinary course, be required to pay the defendants' costs of the application. The prospect of such a consequence in the present case has driven the receiver to submit that whatever the result of his application his costs should come out of the assets of the defendants. The receiver should, in my opinion, in a contest of this kind, be a neutral party and the risks as to costs should be taken by the Commission and this is, I think, consistent with what happens in other cases of the appointment of a receiver. Similarly, if an application were to be made for an order under Pt 43, r 1, it should be made by the Commission, which should accept the risk of having to pay the costs if the application is held to be unjustified.

13. Comyn v Smith (1823) 1 Hog 81; Windschuegel v Irish Polishes Ltd [1914] 1 Ir R 33.

14. Comyn v Smith (1823) 1 Hog 81; Nangel v Lord Fingal (1824) 1 Hog 142; Ireland v Eade (1844) 7 Beav 55; Parker v Dunn (1845) 8 Beav 497; Daniell’s Chancery Practice (7th ed, 1901), v2, p1445; Windschuegel v Irish Polishes Ltd [1914] 1 Ir R 33; Brenner v Rose [1973] 1 WLR 443; Walton R, Kerr on the Law and Practice as to Receivers and Administrators (17th ed, 1989) at 177-178 and fn 63, 64; Kraft v Kupferwasser (1991) 23 NSWLR 236 at 244 (Powell J); Yunghanns v Candoora No 19 Pty Ltd [2000] VSC 387 at [44] (Byrne J); Interior Marble Pty Ltd v Mondo Stone Pty Ltd [2004] NSWSC 981 at [9] (Windeyer J); Re GDK Financial Solutions Pty Ltd (2006) 236 ALR 699 at [31] (Finkelstein J).

15. Corporate Affairs Commission v Smithson [1984] 1 NSWLR 547 at 555.

20. The solicitor for the party with the conduct of the matter is responsible for exercising a general supervision over the receiver. There are suggestions that a receiver/manager should ordinarily not, without the Court’s approval, retain separate solicitors, and if it is desired to obtain advice from a separate solicitor, the receiver should obtain the leave of the Court, on his or her own application if a party will not make the application. [16] It may well be that a receiver is entitled to retain a solicitor in connection with matters personal to the receiver, such a remuneration and potential personal liability; but matters relating to the conduct of the receivership, such as the recovery of property by enforcement procedures, and deciding whether to discontinue a business, are matters to be addressed on application by a party. [17]

    16. Kerr at 180; and see the submission in Windschuegel v Irish Polishes Ltd [1914] 1 Ir R 33 at 34.

    17. Windschuegel v Irish Polishes Ltd [1914] 1 Ir R 33 being a specific example of an application for directions as to whether the receiver should discontinue trading.

21. This receivership was always an interim one, and the appointment endured for a period of only 6 weeks from 10 August 2017. The remuneration claim of $85,000 equates to $14,000 per week – or nearly $3,000 per business day – for the period of the appointment.

22. At the outset, the receivers were informed, and understood, that the primary objective of their appointment was to secure the company’s bank accounts and trading operations; and that their appointment was an interim one – at that point for about six days. The primary objective had been substantially if not entirely achieved by 11 August 2017: the merchant sales, which had been directed to NSI Retail via the new EFTPOS terminal, were redirected back to the company’s bank account; and the receivers had caused the company’s bank accounts to be frozen, opened a bank account for the receivership and recovered the funds transferred to the fifth defendant. The day-to-day management of the business was left in the hands of Mr Simon, and was not undertaken by the receivers, personally or by their staff: the receivers (or their representatives), attended the store on four occasions only, and in respect of the day-to-day operation of the business, undertook only the tasks of paying some of the bills and controlling the bank account they had established for the receivership.

23. I accept that securing the assets of the company in the first few days of the receivership did not exhaust the functions of the receivers; because they were appointed as receivers and managers, and notwithstanding that their appointment was an interim one, it was their function to carry on the business, so as to preserve its value. It was for that very reason - so that the business would be preserved rather than being lost through closure - that they were appointed as managers. However, that does not alter the fundamental proposition that, particularly in the context of an interim appointment, their function was to preserve the status quo. Having secured the assets, the function of the receivers was to carry on the business, as it was, until the Court resolved its future. As interim receivers, they could and should not have acted on the assumption that they would remain in office any longer than was provided for by the interim orders. They were justified in undertaking only such work as was necessary to enable them to carry on the business for the period fixed for the time being by the then operative order of the Court. The assumption that they might remain in office indefinitely was not one on which they should have expended time and incurred costs. In the context of their interim appointment, absent the Court’s direction to do so, it was not within the scope of their function to undertake an extensive investigation of the affairs of the company, such as a liquidator or even a provisional liquidator might, let alone to explore the sale of the company’s business. Nor was it any part of their functions to act as mediators in the underlying dispute.

24. Yet, having achieved the primary objective of their appointment, and while Mr Simon continued to manage the business, the receivers performed work in the period between 22 August and 20 September 2017, for which they claim a total of $55,100, which includes the investigations into the company’s affairs referred to above, correspondence with the defendants and their representatives, the engagement of a forensic information technology employee to attempt to obtain access to deleted email accounts, and the instructing of solicitors to make an application for directions, including to have conferred on them the powers referred to in Corporations Act, s 420.

25. In my view, it was not reasonable for the receivers to undertake some or all of the work for which they claim remuneration, in the following respects:

1. Conducting investigations into the status of the company’s ‘contractors’ (including their remuneration, visa status, whether they were in truth employees and not contractors), the sales practices of the company, and its compliance with workplace and superannuation laws. This went far beyond the role of interim preservation;

2. The extensive efforts to obtain information about the company from the parties (and their legal representatives) and the company’s accountant Yoav Oren, including by utilising the services of a forensic information technology expert and liaising with Google (the host server of the company’s email accounts). More than $9,000 was incurred in respect of the forensic IT expert alone.

3. Conducting extensive negotiations with the parties and their legal representatives, with respect to attempts to resolve the dispute between the parties. It was not the function of the receivers to intermeddle in, or endeavour to mediate, the parties’ dispute.

4. Retaining solicitors, preparing the receiver’s report and affidavit of 7 September 2017, and preparing their initial application to the Court for directions. The report and affidavit was in substance a report on their investigations into the affairs of the company. There was no requirement for this; they were not directed to provide a report. Their function was to secure the assets and manage the business pending a hearing. Given the terms and effect of Corporations Act, s 420, it is not at all apparent why the receivers were in doubt as to their powers; their application to have conferred on them the powers referred to in s 420 was superfluous. If they were concerned as to the legality of aspects of the company’s business, and for that reason in doubt as to whether they should carry it on, they were entitled to have the Court’s guidance, and likewise if they were in doubt as to the scope of their appointment; but they ought first have asked the solicitors for the plaintiff to make the application, rather than incurring the costs of retaining their own solicitors and making their own application. Approximately $12,500 is claimed for instructing and communicating with their lawyers and preparing their initial application to the court for directions, and about $7,500 for preparing and revising their report and affidavit (which was in large part an account of their investigations).

5. Considering the possible sale of the business of the company. This was entirely outside their proper function as interim receivers.

26. There was significant redundancy or duplication of work between the two receivers and their manager; frequently all three were involved in meetings with parties, or their lawyers, or attendances at Court. Much time was incurred in each receiver or manager briefing the others. All three attended a settlement meeting on 14 August 2017, at a total cost of $3,844. All three attended another settlement meeting on 24 August 2017, for which $4,000 is claimed (plus their solicitor at a further $1,620). All three, and their solicitor, attended a conference with counsel on 4 September 2017, for which $2,800 is claimed (plus legals of $825). Both receivers attended Court on 11 September with their solicitor for which they claim remuneration of $1,000 (plus disbursements of $855). A significant amount of purely administrative work, charged at 6-minute units for tasks which would have taken less than that, was performed by Laura Hamawy, a “Senior 2”, which ought to have been performed by a secretary.

27. On an application of this kind, it is not the function of the Court to undertake a taxation of the receiver’s bill on an item-by-item basis. The Court’s function involves a more impressionistic, evaluative and “broad-axe” approach. I do not disallow, on an item-by-item basis, each of the matters to which I have referred. In particular, I would not disallow in its entirety the $43,963.73 claimed for “investigations”; although the receivers have allocated their time between a number of categories as described above, closer examination of their timesheets reveals that that allocation also is very arbitrary and imprecise exercise, and by no means all of the work allocated to “investigations” was unreasonably undertaken, although a significant portion was.

28. However, overall, I am satisfied that at least $30,000 of the remuneration claimed should not have been incurred. Bearing in mind that the receivers bear the onus of proving the reasonableness of the work done and their remuneration for it, they have not persuaded me that their remuneration should exceed $55,000 plus GST.

29. It also follows that the receivers are not entitled to reimbursement of disbursements for legal advice and assistance in respect of their application for directions, though they are in connection with the present application for remuneration.

Dispensation with final accounts

30. UCPR r 26.5 provides that a receiver must file accounts at such intervals or on such dates as the Court may direct, file a notice of motion applying for an order to pass the account, and (unless the Court orders otherwise), attend on the hearing of the application.

31. In conformity with the orders of 20 September 2017, the receivers have filed accounts with ASIC on 3 October 2017, prepared a Report as to the affairs of the company (RATA) dated 6 October 2017, and retained $155,000 on account of their claimed remuneration and disbursements (including those related to the present application). Strictly, after payment of their remuneration and disbursements and refund of any balance to the company, they would be required to lodge further, final accounts. However, that requirement may be dispensed with where the cost of the formal procedure of passing accounts would exceed any benefit from insisting on it. [18] In circumstances where control of the company has returned to the defendants, the substantive litigation has been resolved, and preparation of final accounts in addition to those already provided to ASIC would largely duplicate work already done (save for the inclusion of remuneration and disbursements, the entitlement to which will be manifest from this judgment), further final accounts would serve no material benefit. As has been noted, the defendants – who are the persons to whom any liability to account would be owed – do not oppose dispensing with the requirement.

    18. Ide v Ide [2004] NSWSC 751; (2004) 184 FLR 44 at [24], [26] (Young CJ in Eq); Kerr, in the matter of Angel’s Castle Pre-School Pty Limited (in liq) (No 2) [2012] FCA 57 at [5] (Jacobson J); Tonks, in the matter of PWG Holdings Pty Ltd (in liq) (No 2) [2017] FCA 893 at [21] (Yates J); Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2015] FCA 613 at [5] – [10] (Logan J).

32. The requirement for any further accounts should be dispensed with.

Release

33. The rules make no specific provision for discharge of a receiver, other than in case of default. However, at general law, a receiver may be discharged with the consent of the parties, or upon reasonable cause such as ill health, incapacity or impossibility. [19] A receiver may also be discharged when the continuance of the appointment is unnecessary,[20] or (which is much the same thing) the object of the appointment has been achieved. [21]

    19. Richardson v Ward (1822) 6 Madd 266; 56 ER 1092.

    20. Davy v Gronow (1845) 14 LJ Ch 134.

    21. Tewart v Lawson (1874) LR 18 Eq 490; Hoskins v Campbell [1869] WN 59.

34. By making an order not only for discharge but also for release, the Court may protect the receiver from all liability for acts done in the course of his or her duties, and such a release need not await the expiration of any applicable limitation period if there is adequate opportunity for a claimant to bring a claim, although this will not be granted without investigating, or making provision for the investigation of, claims of which the court has notice. [22]

    22. IRC v Hoogstraten [1985] QB 1077; [1984] 3 All ER 25; [1984] 3 WLR 933 at 944H; Martyniuk v King [2002] VSC 388 at [20]; (2002) 43 ACSR 41 at 45 [20] (Dodds-Streeton J).

35. In Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd, Logan J said:[23]

There is provision in the proposed orders for the release to operate unless a claim is made by way of application to the court by some third party within three months of the date of the order. That was a period of time which commended itself in Inland Revenue Commissioners v Hoogstraten [1985] QB 1077 at 1094. That it did so in the circumstances of that case does not, of course, mean that it ought uncritically to be fixed as a time in the circumstances of the present case. Nonetheless, the evidence here is that there are no threatened or foreshadowed claims against the receivers. Those who have had such claims are parties to a compromise. Once the moneys which are presently held by the receivers are distributed, there will be no funds available to the receivers to provide an indemnity in respect of proceedings which might be brought against them. Given the absence of threatened or foreshadowed claims and the compromise of the claims made to date, it seems to me that a period of three months is a reasonable period to allow in the circumstances of this case.

23. [2015] FCA 613 at [11].

36. Similar circumstances obtain here: no claim has been brought or foreshadowed, and those who potentially might have a claim are the present defendants. Upon finalisation of the present application, the receivers would retain no funds by way of an indemnity in respect of future proceedings. The defendants initially objected to the receivers being released in respect of any liability that may have arisen during their appointment, but when it was pointed out that it would only be reasonable that the receivers retain the money currently in their hands pending clarification of whether there would be any claim against them, ultimately indicated that they would not oppose such an order, providing for a three-month period.

37. The receivers should have a release, subject to a three-month period for claims.

Conclusion

38. My conclusions may be summarised as follows:

39. In the context of an interim appointment, the receivers’ function was to preserve the status quo. Having secured the assets, their function was to carry on the business, as it was, until the Court determined its future. As interim receivers, they should not have acted on the assumption that they would remain in office any longer than was provided for by the interim orders, and they were justified in undertaking only such work as was reasonably necessary to enable them to carry on the business for the period fixed by the current order of the Court. Absent the Court’s direction to do so, it was not within the scope of their function to undertake an extensive investigation of the affairs of the company, such as a liquidator or even a provisional liquidator might, let alone to explore the sale of the company’s business. They should not have retained solicitors to make an application for directions and to have conferred on them powers under Corporations Act, s 420, which the Act already gave them, at least without first asking the plaintiff’s solicitors to do so. Nor was it any part of their functions to act as mediators in the underlying dispute between the parties. Having regard to all those matters, I am satisfied that at least $30,000 of the remuneration claimed should not have been incurred; the receivers have not persuaded me that their remuneration should exceed $55,000 plus GST.

40. The receivers are not entitled to reimbursement of disbursements for legal advice and assistance in respect of their application for directions (as distinct from their present application for remuneration, dispensation with accounts, and a release).

41. In circumstances where control of the company has returned to the defendants, the substantive litigation has been resolved, preparation of final accounts in addition to those already provided would serve no material benefit, and the defendants do not insist on it, the requirement for any further accounts should be dispensed with.

42. Where no claim against them has been brought or foreshadowed, those who potentially might have a claim are the present defendants, and upon finalisation of the receivership, the receivers will retain no funds to serve as an indemnity in respect of future proceedings, the receivers should be released, after the expiration of a three-month period for claims.

43. The court orders that:

1. The remuneration of the applicants as receivers and managers of the company be fixed in the sum of $60,500 (GST inclusive).

2. The requirement under UCPR r 26.5 for the applicants to file and pass any further accounts be dispensed with.

3. The applicants be released from any and all claims whatsoever and howsoever arising from their appointment made pursuant to the orders of 10 August 2017, unless such claim is instituted within three months of the date of this order, or within such longer period as the Court may on application made before the expiry of that period allow.

4. The Receivers would be justified in distributing the assets of the Company retained by them (being $155,000 plus any interest accrued thereon) in the following manner:

1. first, in payment of their costs and disbursements of the Amended Interlocutory Process dated 3 October 2017, insofar as it relates to their application for remuneration, dispensation with further accounts, and a release;

2. secondly, in payment of their other costs and expenses in the receivership of the Company, except insofar as they relate to the retention of lawyers for legal advice and assistance in connection with their application for advice and directions other than to the extent referred to in (a);

3. thirdly, in payment of their approved remuneration of $60,500 (inclusive of GST); and

4. fourthly, the balance, if any, to the company.

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Endnotes

Decision last updated: 10 April 2018