Re Traditional Values Management Ltd (in liq) (No 2)
[2015] VSC 126
•9 April 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2011 01355
IN THE MATTER of TRADITIONAL VALUES MANAGEMENT LIMITED
(IN LIQUIDATION) (ACN 055 106 100)
| GEOFFREY NIELS HANDBERG AND BRENT LEIGH MORGAN (in their capacity as joint and several Liquidators of Traditional Values Management Limited (In Liquidation) (ACN 055 106 100)) | First Plaintiffs |
| v | |
| TRADITIONAL VALUES MANAGEMENT LIMITED (IN LIQUIDATION) (ACN 055 106 100) | Second Plaintiff |
---
JUDGE: | GARDINER AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 29 January 2015 (final submissions 9 February 2015) |
DATE OF JUDGMENT: | 9 April 2015 |
CASE MAY BE CITED AS: | Re Traditional Values Management Ltd (In Liq) (No 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 126 |
---
CORPORATIONS – External administration – Application by liquidators of responsible entity of managed investment scheme for remuneration – Further application.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Moore QC | Mills Oakley Lawyers |
| For the Defendant | Mr M Galvin SC | K&L Gates Lawyers |
HIS HONOUR:
Introduction
Application by the first plaintiffs, Messrs Handberg and Morgan (‘the liquidators’) by an interlocutory process filed 22 July 2014 for orders in respect of their remuneration, costs and expenses for the performance of their responsibilities as the liquidators of Traditional Values Management Limited (in liquidation) (‘TVM’).
This application follows an earlier one in that regard which was the subject of a judgment and orders of 14 December 2012.[1] That application dealt with earlier periods in the insolvency administration of TVM.
[1]IMO Traditional Values Management Limited (In Liq) [2012] VSC 650.
Because the reasons which I handed down in the earlier application surveyed the factual background of the TVM insolvency administration,[2] I shall not repeat those matters here.
[2]Ibid [14]–[17].
In the earlier application, I declared that the amount of Remuneration (as that word is defined in the Orders made by Ferguson J (as she then was) on 14 June 2011)[3] which the liquidators were entitled to receive as voluntary administrators of the TVM between 17 December 2009 and 3 February 2010 was $178,634.82. I also declared that the amount of Remuneration which the liquidators were entitled to receive as liquidators of TVM between 3 February 2010 and 8 July 2011 was $1,418,820.00.
[3]Ibid [3].
Application
In this application, the plaintiffs seek the following orders:
1.An order that the Liquidators’ remuneration, costs and expenses of the application in this proceeding before the Honourable Associate Justice Gardiner initiated by way of interlocutory process dated 22 February 2012 be paid from the Scheme Assets on an indemnity basis.
2.An order that the Liquidators’ remuneration, costs and expenses of this application be paid from the Scheme Assets on an indemnity basis.
3.An order that the quantum of Remuneration (as defined in the Orders) in the amount of $69,038.50 excluded from the previous application before the Honourable Associate Justice Gardiner be paid from the Scheme Assets (as defined in the Orders) in accordance with paragraph 2 of the Orders;
4.An order that the quantum of Remuneration (as defined in the Orders) with respect to the Liquidators’ administration of TVM as liquidators in the period between 9 July 2011 to 31 December 2013 be assessed at $1,546,124 and that this amount be paid from the Scheme Assets (as defined in the Orders) in accordance with paragraph 2 of the Orders.
4A. An order pursuant to s 511(1)(b), alternatively 473(3), of the Corporations Act 2001 (Cth), that the Plaintiffs’ remuneration in the liquidation of TVM for the period between 9 July 2011 to 31 December 2013 be determined in the amount of $1,546.124.
At the hearing of this application the liquidators sought leave to deliver a further amended interlocutory process which sought the following extra relief:
4B.An order that the Liquidators be indemnified out of, and have an equitable lien over, the Scheme Assets for the remuneration in the amount of $69,038.50 referred to in paragraph 3 above;
4C.A direction pursuant to s 511 of the Act that the Liquidators would be justified, and would be otherwise be acting reasonably, in causing the remuneration in the amount of $69,038.50 referred to in paragraph 3 above to be paid from the Scheme Assets.
I indicated at the hearing that the liquidators would be given leave to add such additional grounds for relief.
This application seeks orders of a similar character for the liquidators’ remuneration in the liquidation of TVM for the periods which followed that the subject of the earlier application.
The interlocutory process was first returnable on 15 August 2014. By that time, the interlocutory process, Mr Handberg’s affidavit of 21 July 2014 together with its exhibits and a notice of intention to apply for remuneration dated 22 July 2014 and 23 July 2014 had already been served on the parties. Those parties were the same parties served with the previous application. Amongst them was Mr Neil Campbell who was the contradictor appointed to represent himself and all the unit holders in the Scheme under the Orders of Ferguson J on 14 June 2011 (as varied by her Honour’s Orders of 22 December 2011).
On 15 August 2014, I gave directions for the further conduct of the application and the matter was adjourned for directions on 17 October 2014. On that date, Mr Galvin SC of counsel appeared on behalf of Mr Campbell. Comprehensive written submissions identifying objections to the liquidators’ claims had been provided on behalf of Mr Campbell on 10 September 2014. The liquidators provided a written response to those submissions on 8 December 2014. A considerable number of those objections have, after reflection by Mr Campbell’s legal advisers, not been pressed. The application was set down for hearing on 29 January 2015.
Affidavits
The liquidators rely on the following affidavits:
(a) Seventh affidavit of Geoffrey Niels Handberg sworn 21 July 2014;
(b) Affidavit of Brent Morgan sworn 14 August 2014;
(c) Eighth affidavit of Geoffrey Niels Handberg sworn 29 September 2014;
(d) Ninth affidavit of Geoffrey Niels Handberg sworn 9 February 2015.
Mr Handberg’s ninth affidavit was filed in response to matters which were raised at the hearing of this matter on 29 January 2015.
These affidavits contained the substantive evidence relied upon by the liquidators in support of the present application.[4] Mr Campbell did not file any affidavit in opposition to the application and, as was the case in the previous application, Mr Galvin SC addressed the written submissions which had been provided by him on 10 September 2014. The liquidators’ submissions of 8 December 2014 were in response to Mr Campbell’s submissions.
[4]In addition, the liquidators relied on affidavits of service of Joanne Macready of 14 August 2014 and Lynette Hardy of the same date.
The liquidators’ principal evidence is contained within Mr Handberg’s seventh affidavit. After reciting the general factual background to the matter, Mr Handberg exhibits a document described as the Remuneration Report.[5] The Remuneration Report is divided into three segments. The first provides an overview of the total remuneration claimed, the second contains detailed summaries of the remuneration claimed under 15 separate job codes. Those job codes describe the general nature of the task being undertaken in various aspects of the liquidation. The third segment contains a breakdown of staff members hourly rates from the date of the appointment and their respective qualifications.
[5]Exhibit GNH-45.
The first segment, the overview segment, sets out the overall total quantum of the remuneration claimed and the quantum claimed under each of the job code categories. It also provides a description of each of the seven categories of tasks performed by the liquidators and their staff adopting the ARITA[6] recommended format for remuneration reports to creditors.
[6]Australian Reconstructive Insolvency & Turnaround Association.
As to the second segment, each of the job code summaries provides:
(a) The background information relating to that job code;
(b) A description of the work undertaken by the liquidators under that job code;
(c) A table detailing the time cost of each job code broken down into staff hours;
(d) A table detailing the time cost of each job code in the formal format recommended by the Insolvency Practitioners Association of Australia and its code of professional conduct for the calculation of remuneration claims and reports to creditors;
(e) The timesheets created by the liquidators and their staff with narrations describing the work undertaken for each entry.
The third segment, relating to the rates and qualifications of the liquidators and their staff, sets out the following information:
(a) A table showing the hourly rates of each of the liquidators’ staff members and all increases in such hourly rates since the appointment date;
(b) A profile of each of the liquidator’s staff who has worked on the appointment; and
(c) The quantum of remuneration charged by the receiver for the purposes of comparison with the liquidators’ remuneration claim.
In his affidavit, Mr Handberg also reports as to certain matters relating to a fraud uncovered during the course of the liquidators’ investigation allegedly committed by a Ms Philliston.
Mr Morgan refers to annual general meetings of the creditors of TVM on 21 May 2013 and 27 May 2014. At the 2013 meeting, motions in respect of the liquidators’ remuneration were put to the meeting but failed to pass. Because there was no quorum present in accordance with regulation 5.6.16 of the Corporations Regulations 2001, it was not possible to convene an annual general meeting of creditors of TVM in 2014. Mr Morgan’s affidavit was filed in support of an application to amend the interlocutory process to include the relief set out in paragraph 4A of the interlocutory process. As will be seen, that paragraph seeks orders pursuant to the relevant provisions of the Corporations Act 2001 (Cth) for the determination of remuneration in circumstances where it has not been possible to put resolutions in that regard to the meetings of creditors.
In my earlier decision, I set out the legal principles applicable to consideration by the Court of this type of application.[7] A convenient summary of the approach to be taken is contained in the decision of Davies J in Thackray v Gunns Plantations.[8] It is a summary procedure and the initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. There is no absolute rule regarding the amount of detail required to support such a claim but it should enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If a prima facie case is established, the application should provide for an objection procedure to enable objections to be made. If there are objectors, the Court should then establish the validity of those objections.
[7][2012] VSC 650 [18]–[25].
[8](2011) 85 ACSR 144 [60].
The Remuneration Report[9] is a voluminous document, and occupies three lever-arch folders. It is in much the same form as the remuneration report exhibited to Mr Handberg’s fifth affidavit which was the subject of consideration in the earlier application.[10] The first several pages of the document provide details as to the category of work undertaken, details as to the major tasks undertaken by the liquidators, split up into 15 job codes which are in turn succinctly described, followed by a spread sheet which summarises the remuneration sought in respect of the various job codes. There then follows in respect of each job code a more detailed description of the work undertaken in respect of that job code, and a spread sheet which sets out the time and costs charged broken down by identification of the staff members concerned. Where the rate for a staff member has changed during the period of the time for which remuneration is sought, the table breaks up the respective amounts and periods. Tables 1 and 2 to the report identify each staff member engaged in the liquidation from Mr Handberg and Mr Morgan down to junior clerical staff. It identifies them by their rank in the hierarchy of the liquidator’s firm, the hourly rates charged by them, the total of the hours they were engaged and the amount for which remuneration is sought. The report contains spread sheets which make up the bulk of the exhibit. A typical entry includes the date the work was performed, the job code, the person who performed the task in question, the time occupied, the hourly rate charged, and, under the remarks column, a succinct narrative of what actual work was involved in the claim.
[9]Exhibit GNH-45 to Mr Handberg’s seventh affidavit.
[10]Exhibit GNH-39.
In my view, the material contained within the Remuneration Report satisfies the ‘prima facie’ criterion in Venetian Nominees Pty Ltd v Conlan[11] and the other authorities referred to in my earlier decision. In Conlanas liquidator of Rowena Nominees Pty Ltd (receivers and managers appointed) in liquidation v Adams and ors[12] McClure JA, as to the meaning of ‘prima facie’ in this context stated:
The expression ‘prima facie’ is used in Venetian Nominees to mean that the claimants’ evidence is sufficient to enable the court to determine whether the claimed remuneration is fair and reasonable. So, for example, there must be evidence relating to the work done by particular persons, how long it took to do the work, their hourly rate and the reasonableness of the rate.
[11](1998) 20 WAR 96 (‘Venetian Nominees’).
[12](2008) 65 ACSR 521 [31].
I consider that, as with the Remuneration Report the subject of the previous application, the report contains sufficient information to enable the job code and overall purpose behind the work associated with it to be contextualised, and does so by reference to tasks carried out in connection with particular transactions and issues with which the liquidation of TVM involved. The report also enables a determination to be made as to whether the liquidators have properly delegated work to the appropriate staff member. It does this by breaking down the hours spent by each of the liquidator’s staff members and their respective hourly rates. Like the material put forward in the previous application, I consider it difficult to perceive what further information could be provided, particularly when one has regard to the cost and utility of providing such material. Further, I consider that the Remuneration Report complies with the requirements of r 9.4(7) of the Supreme Court (Corporations) Rules 2003 and satisfies me that the Remuneration (and remuneration) is prima facie fair and reasonable.
Mr Galvin, counsel for Mr Campbell, the contradictor, accepted that the rates being charged by the liquidators are reasonable.[13]
[13]Contradictor’s submissions [28].
Mr Galvin annexed to his submissions copies of parts of the liquidators’ Remuneration Report spread sheets annotated to denote the items to which objection of some sort was taken. The items which were objected to were shaded. A considerable number of such objections were not pressed at the hearing of this matter and, after the conclusion of the hearing on 29 January 2015, Mr Moore QC, the liquidators’ counsel, provided an updated spreadsheet identifying which matters were still pressed and which were not.
The objections
I will now deal with each of the objections which are maintained. I shall adopt the paragraph numbering of Mr Galvin’s submissions to identify the objection in question.
Paragraph 33 - Time involved in generating WIP reports and remuneration schedules excessive
The amount claimed for this item is $19,956.00 The essence of his objection was that on a number of occasions staff had been involved in generating WIP reports for certain periods. Mr Galvin submitted that this is a task which would not be expected to require much in the way of manual or intellectual labour and which would simply involve interrogating a computer system and ‘pressing a button’ to produce a report. The objections in respect of the items identified at pages 73 and 74 of Annexure A were not pressed but a small number, appearing on pages 15 and 16, were.
Mr Handberg in his affidavit of 9 February 2015, filed after the conclusion of the hearing of this matter, dealt with this objection. He stated that WIP reports were generated from the liquidator’s MYOB software. The items objected to by Mr Campbell, he states, did not involve merely the generation of WIP reports. Rather, the work also involved review of those reports, including review of the time periods to which the reports related; this was necessitated by reason of rate changes for particular staff members during a particular period. Those rate changes occurred either as a result of the firm’s overall review of all charge-out rates or a particular staff member’s rate being changed to reflect, for example, a promotion. Those rate changes were entered into the MYOB system but MYOB is not able to split up an employee’s time by charge-out rate where the rate has changed during the relevant reporting period. Instead, it averages the employee’s charge‑out rate. The liquidators’ staff were therefore required to generate separate WIP reports from MYOB to capture the time spent by employees for each period where the specific hourly rate had changed during the period. Mr Handberg states that this is a manual task which ensures that the correct rates are charged for a specific matter by employees that correspond with promotions and rate changes. It is consistent with and complies with s 15.3.2 of the ARITA code in respect of remuneration reports which requires the practitioners charging on a time base to disclose the different rates that apply from time to time. Mr Handberg states that the task to which objection is taken was necessary because without generation and review of WIP reports, the charge–out rates would not be disclosed distinctly or accurately. I accept Mr Handberg’s explanation and I will reject the objection to the items appearing on pages 15-16 of Annexure A.
Paragraphs 34, 35 and 36
These items related to what Mr Galvin submitted were essentially administrative matters which should not have been charged to the liquidation.
The amounts involved in respect of these objections were modest. Objection 34 related to the cost involved in the administrative process of assigning charge–out rates for staff members. Mr Galvin stated this is not an item which should be charged to the insolvency administration, rather it is an employment issue and a matter internal to the administration of Mr Handberg’s firm. Mr Handberg, in his affidavit of 29 September 2014, states in response to this objection that the work performed with respect to reviewing the rates assigned to each staff member was performed as part of the preparation of the Remuneration Report for the 2013 annual general meeting. In addition, the liquidators as members of the professional body ARITA are required to comply with that organisation’s code of professional practice. Further, Mr Handberg, in his ninth affidavit, states that the work involved in the process of assigning rates specifically related only to the TVM liquidation. The work involved which is the subject of the objection was not simply the assigning of rates but the review of entries in the WIP reports related to the TVM liquidation to ensure that the correct rates were charged for them.
As I indicated at the hearing of this matter, I consider that the administrative process of arriving at their charge–out rate, particularly where this is shown to specifically relate to the present liquidation, is a proper item for remuneration and I would disallow the objection. Further, I consider that it was appropriate to follow the guidelines laid down by the liquidators’ professional body in respect of the contents of remuneration reports. No doubt those guidelines were compiled by persons well experienced with the need to properly inform the creditors of the position in regard to remuneration and it would have been, I should have thought, a somewhat minimal standard with which the liquidators had to comply.
As to items 35 and 36, which relate to the internal administrative time dealing with creditors, I would disallow those objections. Those matters, in my view, arise as part of the ordinary course of the liquidation. The fact that Mills Oakley Lawyers, the liquidators’ solicitors, were one of the creditors in question does not alter the issue. They were owed fees by the liquidators for performing work to the benefit of the insolvency administration and I would allow such sums and therefore reject the objections.
Paragraph 37 – Costs for preparing invoices for liquidator’s work should not be allowed
As in respect of the proceeding objections, I consider that this task is a proper cost to the administration. It is part of the accounting process involved in the insolvency administration and should be allowed.
Paragraph 43 – The claim for remuneration in connection with the application is excessive
This is the largest claim for which there is an objection. Mr Galvin accepted that the liquidators should be remunerated for the time involved in compiling the material required for a remuneration application but contends that the amount is excessive.
The amount claimed for this item was $154,351.00. This amount was for the preparation of the Remuneration Reports for both the present and the previous application. At the hearing of this matter Mr Galvin clarified that the essence of the objection was whether the liquidators had, in preparing the Remuneration Reports, undertaken additional work in order to comply with the Code of Professional Conduct published by ARITA. That is, whether meeting compliance with the ARITA Code required the performance of work that would not have been necessary or appropriate in preparing a report that complied with Venetian Nominees. If it did involve performance of additional work, Mr Galvin contended, the liquidators should not be remunerated for it.
In his affidavit of 29 September 2014 Mr Handberg addresses this issue. He deposed that the liquidators are members of ARITA and are required to comply with its Code of Professional Practice when seeking fee approval. This involves:
(a) Presenting timesheet data in a prescribed format. The required format is relatively new and Mr Handberg is not aware of any practice management software currently available that allows the Remuneration Report to be completed automatically. Most if not all current systems require a great degree of manual manipulation of data to comply with ARITA’s remuneration format.
(b) Raw data obtained from MYOB was required to be transposed into ARITA styled tables.
(c) Charge out rates of staff members needed to be extracted individually and manipulated to fit into the ARITA styled tables.
(d) Detailed descriptions with respect to the tasks performed were required to be summarised and disclosed appropriately to creditors for remuneration approval.
(e) Given the complex nature of the winding up, Mr Handberg’s staff maintained 15 separate and distinct job codes, each relating to the different aspects of the winding up. Each of the 15 individual codes needed to be consolidated into one remuneration report, which was then categorised into one of three categories, being work performed in relation to:
(i) BDT;
(ii) TVM;
(iii) TVM/BDT.
(f) Separate reports were required to be generated for each financial year as staff member charge out rates are often revised on 1 July of each year.
In his affidavit of 9 February 2015, Mr Handberg elaborates on the requirements of the ARITA Code. The Code has three levels of requirements:
(a) Mandatory requirements (expressed as ‘must or must not’), which must be followed by members;
(b) Recommended behaviours (expressed as ‘should or should not’), which, while not essential, the ARITA Code says should be followed unless there is good reason not to. Where a recommendation is not followed, the ARITA Code says that the member should ‘record the reasoning used for diverging from the ARITA Code, state the rationale used to determine that the action followed is not proscribed by the ARITA Code and be able to explain that the path taken results in an equal or better outcome for stakeholders’;
(c) Permissive statements (expressed as ‘may’).
The ARITA Code requirements for Remuneration Reports fall into the second category. The liquidators practice is to follow the ARITA Codes’ recommended report format for remuneration applications because:
(a) Compliance with the ARITA Code is mandatory for members of ARITA, and recommendations are followed by ARITA members unless there are exceptional and sound reasons why they should not be followed in a particular insolvency appointment;
(b) The recommended format provides easy to comprehend information for creditors and other users of the report; and
(c) In large, complex liquidations, following the recommended format of the report is the easiest way to present and break down a large volume of remuneration data, which would otherwise be presented in voluminous timesheet entries.
Mr Handberg states that although compliance with the ARITA Code is not strictly required for remuneration applications, in practice the liquidators and their staff adhere to the recommendations as this ensures that sufficient and clear information is provided to the Court in order to determine that the amounts claimed for their remuneration are fair and reasonable. The liquidators maintain 15 separate and distinct job codes to account for fees and costs associated with scheme assets and realisations in the winding up. These are broken into three categories manually:
(a) Work associated with TVM;
(b) Work associated with TVM and BDT; and
(c) Work associated with BDT as required by the Orders of Ferguson J as she then was on 14 June 2011.
As I have stated above, while MYOB is able to produce timesheet entries with descriptions and hours spent, it is not able to split up an employee’s time with multiple charge-out rates. Accordingly, the liquidators’ staff had to compile reports manually for each of the different periods at which the rate charged for each employee had changed. This has to be done in respect of each of its 15 job codes and a considerable amount of manual work was involved in undertaking this task. Once those reports were generated they were consolidated and the work in progress for each job code was broken down into eight broad categories. These were:
(a) Assets;
(b) Creditors;
(c) Employees;
(d) Trade-on;
(e) Investigation;
(f) Dividend;
(g) Administration;
(h) Communication.
Such classification into categories is not only recommended by the ARITA Code, Mr Handberg states, but is useful in providing transparency by summarising the amount of remuneration claimed for each category. Once the summary tables are prepared, these are checked against the MYOB reports to ensure accuracy and consistency.
In his 9 February 2015 affidavit Mr Handberg contends that the Remuneration Reports prepared significantly simplify the information. They outline and summarise each of the categories of work performed and the total amount claimed for each category. Although this involves a lot of manual work, Mr Handberg deposes that in his experience this work is not wasteful as the reader of the report is able to readily distinguish what amounts are claimed for what category of work including a description of what the work entails.
Mr Handberg deposes that the liquidators would have undertaken the above work in preparing the Remuneration Report regardless of the ARITA Code. He considers that this work was appropriate in a liquidation as large and as complex as TVM’s. Without that work, the Remuneration Report would have contained only a very long list of items of work performed, with no division in the major tasks, no summary tables and no narrative explanations of the work performed.
As a result of these matters, Mr Handberg states his belief that no work for which remuneration is sought was duplicated as a result of the decision to comply with the ARITA Code.
In supplementary submissions submitted by Mr Moore on 9 February 2015, he made reference to the passage of Venetian Nominees,[14] where Kennedy and Ipp JJ stated:
[14](1998) 16 ACLC 1658–1659.
Ordinarily, to commence the proceedings, the provisional liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly. The statement of account should also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.
The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred.
In Re Solfire Pty Ltd (In liq) (No 2), Shepherdson J said at 1,164:
In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the bill of costs in taxable form provided by a solicitor to his client ... He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisional liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which document should be open to inspection by persons entitled to see them.
In our opinion, however, it is, with respect, unnecessary to lay down an absolute rule, in such detailed terms, concerning the statement of account to be provided by a provisional liquidator. It may well be that in a particular case information particularised as suggested by Shepherdson J would be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function under s 473(2).
If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations made: see generally Gava v Grljusich, unreported; FCt SCt of WA; Library No 970492; 19 September 1997.
Notice should be given of the points on which the provisional liquidator will be cross-examined (if cross-examination is allowed). The notice of objection should be supported by affidavit. Cross-examination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry V-C in Computer Machinery Co Ltd v Drescher (at 1386), namely:
It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs.
Having set out the general principles applicable, we turn now to the particular facts relating to these appeals.
The respondent's claims for remuneration as regards the fees of his firm were based on hourly rates. The respondent produced to the learned Master, for example, an invoice showing that, as regards Plant, for the period from 2 October 1997 to 31 January 1998, he and employees of his firm had spent between 50 and 60 hours working on tasks relating to his duties as provisional liquidator. Thus, for instance, a manager was said to have worked for 16.10 hours and 11.50 hours, a secretary or word-processor operator was said to have spent 14.30 hours and 2.50 hours, a computer operator 1.20 hours and a supervisor 7.60 hours. Various rates were then accorded to the hours spent and the aggregate of the fees charged for all persons specified was calculated as being $8,178.20. Attached to this invoice was a document which purported to set out: ‘Details of work performed for the periods 2 October 1997 to 31 January 1998’. This document was in very general terms. It identified in an all-embracing fashion certain tasks that were performed, but did not specify who performed them, and how long each task took. Furthermore, many of the tasks were described in such a way that it was impossible to discern why they were necessary, what precisely was involved in performing them, and what level of complexity or responsibility attached to them. The descriptions tended more to conceal this kind of detail rather than reveal information essential to the court's function of determining whether the remuneration charged was fair and reasonable. Typical examples of the descriptions were the following:
•Discussions and correspondence to Smith Broughton and Sons regarding retention of plant and equipment pursuant to lien to satisfy outstanding fees and disbursements.
•Liaise with Marsh and McLennan, Insurance Brokers regarding insurance of WNP assets ...
•Discussions with Mr Darren Smith regarding Mr Caratti's request to replace three tyres on equipment held at Smith Broughton, discussions with Mr Kevin Pollock regarding the same and correspondence to Mr John Caratti confirming conditional access to vehicles so as to preserve the value of WNP assets.
•Discussions and correspondence with and to Smith Broughton regarding termination of provisional liquidation and retention of equitable lien over assets.
•Discussions and correspondence with Smith Broughton regarding action by WNP initiated by Mr John Caratti against Smith Broughton regarding release of plant and equipment items and liaising with Blake Dawson Waldron in relation thereto ...
•Numerous discussions, meetings and correspondence with Blake Dawson Waldron, lawyers acting on my behalf regarding various matters…
I agree with Mr Moore’s submissions that the prescriptions contained in the ARITA Code run parallel with the nature of the evidence required to be adduced in these types of applications as described in Venetian Nominees. Venetian Nominees requires sufficient information to be provided for the Court to determine that the amounts claimed are fair and reasonable. Mr Moore contended that in a liquidation as large and complex as the present case, the preparation of summaries by liquidators should be encouraged, not discouraged. Indeed, as I indicated in the course of argument of this matter at the hearing of this application, the use of summaries by the insolvency practitioners who were administrators and liquidators in the Gunns Administration was regarded by Ferguson J (as she then was) when considering a remuneration application of a very similar character to the present one, as being the only practical course to adopt having regard to the volume of the material involved.[15]
[15]Re Gunns Plantations Limited (No. 4) [2013] VSC 595 [14].
Mr Moore submitted that in this matter there were a very large number of individual fee entries in the Remuneration Reports prepared by the liquidators. All of those entries required explanation. He submitted that the division of the Remuneration Reports into separate areas by use of the job codes accompanied by summary tables and descriptions was highly desirable. I agree. It simplified and summarised the individual fee entries so as to allow the contradictor and the Court to assess in a meaningful and efficient way whether the remuneration claimed was fair and reasonable. If this had not occurred, the Remuneration Report would simply have comprised a very long table containing thousands of individual entries. He contended and again I agree that that would hinder rather than help creditors and contradictors and the Court reviewing the work that had been done in an efficient manner.
Mr Moore contended that the liquidators approach of providing summaries of the work completed under each job code, in accordance with the ARITA Codes recommended remuneration format, was therefore directed at satisfying both the Code and Venetian Nominees requirement that sufficient information be provided to the Court to determine that the amounts claimed are fair and reasonable. I agree with Mr Moore’s submissions in this regard. If the Court and the contradictor had been provided with the timesheets unbroken down into job codes consisting of hundreds of pages of spread sheets, the task involved in the present exercise would have been much more difficult for both the contradictor and the Court, who would be far less efficiently informed as to what tasks were actually carried out in the course of the liquidation, who performed them, how long they took, how the members of the hierarchy of the firm was involved in the process and all the other matters which the Court turns its mind to in considering these types of applications. The observations that I have made above in respect of objection 34 are apposite here.
As such, I considered the manner in which the report was prepared to be appropriate in the circumstances. As was pointed out at the hearing of this application, the total of the remuneration sought by the liquidators was in excess of $3 million. The volume of documentation which was produced by the liquidators in order to substantiate their claim for remuneration was, as I have described, voluminous but it was necessary to adduce it in order to establish the rights to remuneration. The amount of $154,351.00 is not to my mind disproportionate to the establishment of such a large claim for remuneration. It was remuneration both in respect of the present application and the previous application made before me in 2012. For the reasons that I have given above, I do not accept Mr Galvin’s submission that every insolvency practitioner should be able to prepare a report which complies with the Venetian Nominees requirements by automatic production from its computer database.
Further, I do not consider that the material in the Remuneration Report provided excessive information, the cost of which should not be visited on the creditors. I also think it is reasonable for the liquidators to have complied with the requirements of their professional body. Those requirements were no doubt promulgated for good reason to inform persons interested in the remuneration being awarded to insolvency practitioners to more readily comprehend how the claim is comprised. Nothing in the summary description in the ARITA Code in respect of Remuneration Reports suggests that the level of information being required is greatly in excess of that which would be required to be produced by an insolvency practitioner in establishing a claim for compensation complying with the requirements mentioned in Venetian Nominees.
While Mr Galvin asserted that this part of the claim was excessive, he did not point to any particular items to make this out. I would not reduce the amount claimed by the liquidators for this part of their claim.
Paragraph 47 - The cost of administering payment of Ms Philliston’s wages are excessive
This claim was for $80.00 per week and totalled $1613.00. Ms Philliston, who was an employee of TVM, was employed by the liquidators in the collection of personal loans. Mr Galvin accepts that it was appropriate to pay her wages. However, he contends that the cost of administering the payment of her wages are significant and should not be allowed in addition to the wages themselves or at least should be reduced. The narrative describing these claims variously describes the task being undertaken as ‘collate pay trading liabilities’, ‘paying Lynn’s wages’, ‘amending wages payment to Lynn’ and ‘preparing payment of Lynn’s wages’.
At the hearing of this matter, I sought clarification of what was involved in the tasks for which this claim was made. Mr Handberg deposes in his September affidavit that Ms Philliston was employed by TVM in its capacity as the Responsible Entity for Blue Diamond Deposit Trusts No. 1. She was paid on a weekly basis which required a weekly verification of her wages, review of her expenses claimed, calculation of her wages and tax, processing of wages on MYOB software and calculation and payment of her superannuation entitlements.
In his February 2015 affidavit, Mr Handberg elaborates on this. He states that these matters involved the following procedure on a weekly basis:
(a) A junior staff member would receive Ms Philliston’s timesheet and disbursements if any for the week;
(b) The junior staff member would review the timesheet for reasonableness and calculate Ms Philliston’s wages, superannuation, PAYG withheld and disbursements if any, and enter the same on a master spread sheet;
(c) A senior staff member would review the calculations on the master spread sheet;
(d) Once approved by a senior staff member, a payment request would be entered into the MYOB system by a junior staff member who would facilitate a payment via online bank transfer;
(e) The more senior staff member would review both the MYOB payment request and the details of the online banking transfer; and
(f) The liquidator would then review the MYOB payment request and authorise the transfer.
The average cost of $80.00 per week equates approximately to 0.3 hours spent by a junior staff member and 0.1 hours spent by a senior staff member.
My initial impression was that the amount of remuneration claimed for this item seemed excessive. However, when one has regard to what is required to comply with the requirements of accountability which are described in Mr Handberg’s affidavits and the number of persons involved in the task of computing and paying her wages, I would not be minded to reduce this claim. She was an external employee of the liquidators’ firm and this involved monitoring of the appropriate level of wages to be paid to her. I would disallow the objection but I can understand why it would be regarded as being excessive if all that was occurring was ‘payment of her wages’. The task involved was, as has been seen, a more cumbersome, bureaucratic exercise which required some time each week by low level and medium level employees.
Paragraph 48 – Cost of preparing covering letters excessive
This claim, totalling $1,197.00, involved a charge of $35.00 per covering letter including the cost of preparing the letter, drawing a cheque and entering a transaction in records kept by the liquidators. This occurred on each occasion where there was payment to various suppliers of services including legal practitioners. The letters were tailored for each particular payment, identifying the invoice and other such information. I indicated at the hearing of this matter that I regarded it as being an appropriate task to be undertaken by the liquidators as it really forms part of the generation of their records of the liquidation. I would not impart that the liquidators could just send a cheque through the mail without reference to what the payment was for and I consider that it was appropriate for a letter to be generated on each occasion on the liquidators’ letterhead.
As I indicated at the hearing, it makes the receipt of the payment by the supplier more certain in that it identifies what the payment is in respect of. I would disallow the objection.
Paragraph 49 – Charges of attendances for swearing affidavits unnecessary
Here Mr Galvin contended that it was not necessary for a member of Mr Handberg’s staff to attend on him for the swearing of an affidavit. Mr Handberg in his affidavit in reply contended that it was often the case that staff members would be involved in the preparation of checking the content of affidavits and exhibits. The claim is modest ($57.00). Mr Handberg deposes that the review in question was of affidavits and exhibits so as to ensure their accuracy was part of the process of recovering payments from two timeshare debtors. The staff members who had the direct carriage of the matter he deposed were often in the best position to review the affidavits, exhibits and confirm details. I accept this explanation and will disallow the objection.
Paragraph 64 – Queried duplication of claims for entries relating to Philliston’s employment
This claim was for $1,869.00. This matter which was in the nature of a query rather than an objection, was addressed in Mr Handberg’s affidavit of 29 September 2014.[16] Mr Galvin accepted that he was not in a position to disagree with the explanation given by Mr Handberg that this claim did not amount to a duplication.
[16]At [51]–[54].
Queried duplication of claims relating to the remuneration application
This was a claim for $466.00 and again was in the nature of a query rather than an objection. Mr Handberg explained in his 29 September 2014 affidavit that no duplication was involved in this claim,[17] and Mr Galvin was not in a position to disagree with that contention.
[17]At [58]–[60].
Paragraph 70 - Query as to how work relates to enforcement of Whittington debt
This is a claim for $3,680.00. This was again a query rather than an objection. Mr Galvin contended that it was not apparent to the contradictor how the items the subject of this claim related to a debt owed by a Mr Whittington. Mr Handberg addresses this issue in his affidavit of 29 September 2014.[18] In succinct terms TVM advanced an entity called Shelborne $645,000.00 between June and August 2008. Shelborne provided security to TVM in the form of, among other things, a fixed and floating charge over its assets which was not registered by TVM but was registered with ASIC following the liquidators’ appointment. Shelborne had previously operated a financial planning business which was sold in December 2009 for $200,000.00 payable in 86 monthly instalments. On 16 November 2010, TVM enforced its rights under the Shelborne Charge and as mortgagee in possession entered into possession of a debt owed to Shelborne by Whittington. A separate job code was set up for Shelborne Financial Services which was administered and run as a distinct file. Only work relating to Shelborne was charged to this code. Entering receipts and payments, reconciling bank accounts and reviewing bank statements were part of the process of maintaining funds received following the enforcement of the debt owed by Whittington to Shelborne and which was part of the property covered by the Shelborne Charge. I accept this explanation for this item and consider that it would satisfy the contradictor’s query.
[18]At [62]–[68].
Paragraph 72 – Costs of preparing covering letters should not be allowed
I would not allow this objection and I refer to my ruling in respect of the costs of preparing covering letters in paragraphs 55 and 56 above.
Paragraph 76 – Query as to duplication of charges relating to public examinations
Paragraph 77 - Certain items do not appear to litigation
I consider that Mr Handberg’s explanation in his September affidavit satisfactorily addresses these queries and Mr Galvin was not in a position to effectively contradict those explanations. As to the matters raised in the paragraph 76 objection, Mr Handberg deposes that they do not amount to duplication of charges. The query arises because on occasions, entries appear in respect of ‘legal’ matters and on other occasions ‘public examinations’.
As to the objection the subject of paragraph 77 of Mr Galvin’s submission, Mr Handberg details in paragraph 79 of his September affidavit the tasks included under that claim. I accept Mr Handberg’s contention in his affidavit that the matters referred to in paragraph 79 were reasonable and appropriate for the liquidators to be involved in. These included:
(a) Reviewing unit holders accounts and unit redemptions made by the secured creditors;
(b) Analysing interest accrued on each of the loans made from TVM;
(c) Investigating and analysing loans issued by TVM;
(d) Applying methodology provided by experts in calculating the loss and damage suffered by TVM;
(e) Reviewing the books and records of TVM; and
(f) Reviewing the accounting standards as an application of the same for the purpose of investigating the conduct of the accountant and auditor defendants in the litigation.
I am satisfied with Mr Handberg’s explanation of these queries and I disallow the objection.
Paragraph 78 – Cost of covering letters
This was a claim for $184.00. I would not accept this objection for the same reasons that I have rejected the objection the subject of paragraph 48 of Mr Galvin’s submissions.
Application of Statutory Criteria under s 473(10)
In my earlier decision,[19] I discussed the application of the statutory criteria prescribed by s 473(10) of the Act in this liquidation. In my view, the matters mentioned in s 473(10)(a)–(k) are not materially different to the claim the subject of the present application. Here I consider that the liquidators have made out a prima facie case that their claim was fair and reasonable and adequately address the matters mentioned in s 473(10)(a)–(d). Similarly, the factors mentioned in ss 473(10)(e)–(g) are still apposite in the context of this application. The insolvency administration of TVM was clearly at the higher end of complexity and involved the undertaking of considerable responsibility above the norm. The remainder of the factors mentioned in s 473(10) which I have discussed in paragraphs [65]–[68][20] remain unchanged in the context of this application. As such I would not reduce the amount of remuneration sought on application of the discretionary criteria.
[19][2012] VSC 650 [63]–[69].
[20][2012] VSC 650 [65]–[68].
Conclusion
It will be seen by reason of the foregoing that I have made no deduction on account of any of the objections or queries. At this point I observe that, while Mr Galvin has not been successful in upholding any of the queries and objections, his involvement on behalf of Mr Campbell as contradictor to the liquidators’ application has been a valuable and constructive one and has been of considerable assistance to the Court. I will hear counsel on the form of orders to be made consequent on these reasons.
3
0