Re Western Port Holdings Pty Ltd
[2018] VSC 352
•27 June 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2017 00123
IN THE MATTER of WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150)
| WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT)(SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150) (and others according to the attached schedule) | Plaintiffs |
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JUDGE: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 January 2018 and 6 June 2018 |
DATE OF RULING: | 27 June 2018 |
CASE MAY BE CITED AS: | Re Western Port Holdings Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2018] VSC 352 |
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CORPORATIONS – Court-appointed receivers – Application for approval of remuneration – Source of power for making orders – Prima facie case for remuneration established – Quantum of remuneration – Discount for possible duplication – In the matter of Banksia Securities Ltd (in liq) (receivers and managers appointed) [2017] NSWSC 540 – IMO Traditional Values Management Limited (in liq) [2012] VSC 650.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr B Skinner, solicitor (30 January 2018) Mr B Cetinkaya, solicitor (6 June 2018) | Evans Ellis Lawyers |
| Members of the Committee of Inspection appeared in person (6 June 2018): | Mr Kier Cavanagh Mr Jason Sant Mr Peter Denyer |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 3
Applicable principles........................................................................................................................ 5
Source of power/jurisdiction to make the orders sought....................................................... 5
The Court’s approach to fixing the Receivers’ remuneration................................................ 6
Consideration.................................................................................................................................... 11
The evidence................................................................................................................................ 11
The Creditors Committee’s submissions................................................................................. 14
Receivers’ prima facie case for approval................................................................................. 15
Amount of remuneration to be approved............................................................................... 16
Difficulties created by the way the evidence has been presented.............................. 16
Review of the items claimed in the Revised WIP Report............................................ 18
Dealing with the likelihood of some duplication between the remuneration claimed by the Receivers in their role as receivers and the work performed in their role as liquidators.................................................................................................................................. 19
Proportionality................................................................................................................... 21
Conclusion......................................................................................................................................... 23
JUDICIAL REGISTRAR MATTHEWS:
Introduction
By an amended interlocutory application filed 23 January 2018 (‘Amended Application’), the plaintiffs seek approval for the remuneration of David Anthony Ross and Richard Albarran in their capacity as joint and several receivers and managers of the DOH Family Trust (‘Receivers’).[1] The Receivers are the second plaintiff in this proceeding.
[1]By orders made on the Court’s own motion on 26 October 2017, the plaintiffs’ application for approval of their remuneration was referred to me for hearing and determination, pursuant to r 84.03 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) and, if required, also pursuant to r 16B.2(3) of the Supreme Court (Corporations) Rules 2013.
The trustee of the DOH Family Trust is Western Port Holdings Pty Ltd (‘WPH’).
The Receivers were appointed as receivers and managers of the business and assets of the DOH Family Trust, established by deed of settlement dated 1 November 2011 (‘Trust’), by orders made by the Honourable Justice Kennedy of this Court on 23 May 2017 (‘Appointment Orders’).[2]
[2]Her Honour’s reasons for judgment are set out in Re Western Port Holdings Pty Ltd [2017] VSC 280 (‘Reasons’).
By the Amended Application, the Receivers seek approval for their remuneration for the period 23 May 2017[3] to 7 September 2017 in the sum of $122,714.50 or such further or other amount as the Court may determine.
[3]The Amended Application refers to the period 22 May 2015 to 7 September 2017. I have assumed that the reference to 2015 is an error and that it should be 2017, and that the period is from 23 May 2017 rather than 22 May 2017. The basis for my assumption is that although 22 May 2015 was the date upon which Mr Albarran and Mr Ross commenced as Deed Administrators of WPH pursuant to a deed of company arrangement (‘DOCA’), 23 May 2017 was the date upon which they were appointed as receivers and managers by the Court, and the Amended Application seeks approval of their remuneration in their capacity as receivers and managers. Further, the evidence (which I shall describe later) also goes only to the period after 23 May 2017, in terms of the dates referred to in the detailed report of remuneration claimed. The Receivers’ solicitor confirmed during the hearing that my assumption is correct.
The Receivers rely on the following material in support of the Amended Application:
(a) affidavit of Mr Albarran sworn 18 May 2017 (‘First Albarran Affidavit’);
(b) supplementary affidavit of Mr Albarran sworn 22 May 2017 (‘Second Albarran Affidavit’);
(c) further affidavit of Mr Albarran sworn 6 September 2017 (‘Third Albarran Affidavit’); and
(d) further supplementary affidavit of Mr Albarran sworn 23 January 2018 (‘Fourth Albarran Affidavit’);
(e) second further supplementary affidavit of Mr Albarran sworn 11 April 2018 (‘Fifth Albarran Affidavit’); and
(f) affidavit of Bekir Cetinkaya affirmed 24 November 2017 (‘Cetinkaya Affidavit’).
Notice of the Receivers’ initial application for remuneration was given to the members of the committee of inspection formed once WPH went into liquidation (‘Creditors Committee’). The members of the Creditors Committee were given the unamended interlocutory application filed on 20 September 2017 (‘Initial Application’) and the Third Albarran Affidavit.[4]
[4]Cetinkaya Affidavit, [7]–[10], exhibit BC-4.
The Receivers’ Amended Application was unopposed at the hearing on 30 January 2018. The following matters were raised by me at the hearing, which gave rise to further procedural steps:
(a) after hearing submissions from Mr Skinner, I requested that the Receivers provide a copy of the spreadsheet setting out the detail of the Receivers’ fees in a different format to that exhibited to the Fourth Albarran Affidavit, by setting it out in date order. This was subsequently provided to the Court as an exhibit to the Fifth Albarran Affidavit; and
(b) I also requested that the Receivers take further steps to inform the Creditors Committee about the hearing and the opportunity to make submissions if desired. The Receivers’ solicitors were to communicate with the Creditors Committee, give the members an opportunity to respond, and then to inform the Court of the outcome of that process.
I will explain later in these reasons why I adopted the course referred to in paragraph 7(b) above. It suffices to mention, at this point, that the Receivers and their solicitors followed that course, which prompted Mr Kier Cavanagh to send an email on 8 May 2018 to my associate on behalf of the Creditors Committee which expressed some concerns about the application, and the application was then listed for a mention on 6 June 2018. The members of the Creditors Committee attended Court on that day and Mr Cavanagh made submissions for the Committee. I will return to this later.
For the reasons set out below, I will approve the Receivers’ remuneration in the amount of $47,000.00.
Background
WPH operated a traffic management service business based in Nunawading. It was incorporated in 1999 and was appointed the trustee of the Trust in 2011.[5] Mr Skinner informed the Court that this was a trading trust which owned and operated the business.
[5]First Albarran Affidavit, [10], [11], [13(a)].
Mr Albarran and Mr Ross were appointed joint and several administrators of WPH on 13 April 2015. On 22 May 2015, they were appointed as deed administrators of a deed of company arrangement (‘DOCA’). From about July 2016, WPH breached various obligations pursuant to the DOCA. Following WPH’s failure to rectify the breaches, Mr Albarran and Mr Ross entered into possession of the business of WPH pursuant to their powers under the DOCA on 5 May 2017.[6]
[6]First Albarran Affidavit, [5], [7], [18], [24], [25]; Reasons, [8].
WPH’s business had continued to trade throughout all that time. After entering into possession of the business, Mr Albarran and Mr Ross continued to trade the business and also set about selling the business and assets of WPH and the Trust as a going concern.[7] They sought orders from this Court to be appointed as receivers over the business and assets of the Trust, so as to avoid any uncertainty concerning their ability to effect the sale of the business and assets of the Trust. At the time those orders were sought, the sale process was at an advanced stage.[8]
[7]Reasons, [8].
[8]Reasons, [2].
The Court made the Appointment Orders on 23 May 2017.
On 24 May 2017, Mr Albarran and Mr Ross were appointed as liquidators of WPH, following a creditors’ meeting on that day which resolved that the DOCA be terminated and the company placed into liquidation.[9]
[9]Reasons, [2]; Fifth Albarran Affidavit, [8].
The settlement of the sale of the business occurred on or around 30 June 2017.
Mr Albarran and Mr Ross have therefore been performing roles as receivers of the Trust, from 23 May 2017, and as liquidators of WPH, from 24 May 2017. The Amended Application seeks only the approval of their remuneration as receivers: I was informed that the Creditors Committee had separately approved their remuneration as liquidators and that either the creditors or the committee had approved their remuneration as deed administrators.
It was apparent from the material before me at the hearing on 30 January 2018 that the members of the Creditors Committee were confused (at least) about the application. The Cetinkaya Affidavit exhibits some correspondence between the Receivers’ solicitors and members of the Creditors Committee, in response to them being served with the Initial Application and the Third Albarran Affidavit. An email from Mr Cavanagh on 20 November 2017 to Mr Cetinkaya evinces this confusion. Mr Cavanagh says that they (meaning he and the other two members of the Creditors Committee) are confused about what the Initial Application relates to, as it refers to Mr Albarran and Mr Ross seeking approval for their remuneration for the period 22 May 2015 to 7 September 2017 (see footnote 3 above for these details), in circumstances where there had been previous remuneration amounts approved during the course of the DOCA and by the Creditors Committee for that period, and where there had been a specific request for approval of the remuneration for the deed administrators for the period 1 May 2017 to 24 May 2017 in the amount of $84,433.50. That confusion is readily understandable. Mr Cavanagh asked why an application was being made to the Court when the previous practice had been to seek approval from the Creditors Committee, and where no such approval had been sought in relation to the amount sought in the Initial Application.
Such confusion is further compounded by the form of the Initial Application. In that document, Mr Albarran and Mr Ross sought approval for their remuneration for ‘acting as Deed Administrators’ of WPH.[10] In the Third Albarran Affidavit, Mr Albarran states that he makes this affidavit in support of the relief sought in the Initial Application and refers to his and Mr Ross’s roles as deed administrators. In a heading in the affidavit, he describes the remuneration as being for ‘work in connection with the Administration, DOCA and sale of properties’. Their role as receivers is not mentioned, other than a description of some of the work done being in respect of the application to the Court for their appointment as receivers over Trust assets.
[10]Initial Application, 1.
It was not just the Creditors Committee members who were confused. Upon reviewing the Initial Application, I could not ascertain how that application was made in a proceeding connected with the receivership of the Trust assets. Accordingly, I held a directions hearing on 24 November 2017 and raised this with the Receivers’ solicitors. They confirmed that the application was for approval of the fees of Mr Albarran and Mr Ross in their roles as Receivers and I gave leave to file an amended application.
Applicable principles
Source of power/jurisdiction to make the orders sought
The Amended Application seeks approval of the Receivers’ remuneration pursuant to s 425 of the Corporations Act 2001 (‘Act’). Section 425(1) of the Act provides as follows:
The Court may by order fix the amount to be paid by way of remuneration to any person who, under a power contained in an instrument, has been appointed as receiver of property of a corporation.
In my view, the Court’s power to approve the Receivers’ remuneration in this instance is not derived from s 425 of the Act. First, the Receivers were appointed by the Court, not pursuant to an instrument. Second, the Receivers were appointed to the property of the Trust, not to the property of a corporation.
Rather, the Court’s power to approve the Receivers’ remuneration derives from its inherent jurisdiction, having had the power to appoint the Receivers in the first place pursuant to s 37 of the Supreme Court Act 1986 (Vic), and from r 39.02 of the Rules.
The Appointment Orders included the following order in relation to the Receivers’ remuneration (‘Remuneration Order’):
The costs, expenses and remuneration incurred by the [Receivers] in acting as receiver and manager of the Trust business and assets be paid from the assets of the Trust, and if they be insufficient, the assets of [WPH], the quantum of such costs, expenses and remuneration to be approved by the Court.
As a consequence of the above, the Receivers cannot be paid their costs, expenses and remuneration without the approval of the Court, and the Court has jurisdiction to make orders in this respect.
The Court’s approach to fixing the Receivers’ remuneration
Gleeson JA, in In the matter of Banksia Securities Ltd (in liq) (receivers and managers appointed),[11] set out the relevant legal principles for the Court’s approach to approving the remuneration of court-appointed receivers, as follows:[12]
[11][2017] NSWSC 540 (‘Banksia Securities’).
[12]Banksia Securities, [39]–[40].
First, a useful statement of the principles applicable to applications by court-appointed receivers for approval of remuneration is to be found in the judgment of Young CJ in Eq in Ide v Ide (2004) 184 FLR 44; [2004] NSWSC 751. It may be summarised as follows (omitting references to the various authorities cited by his Honour):
1.The court constituted by a judge never considers a review of quantum, but only matters of principle.
2.A receiver is entitled to have his costs, charges and expenses properly incurred in the discharge of his ordinary duties or in the performance of extraordinary services that have been sanctioned by the court.
3.The receiver must justify the reasonableness and prudence of the tasks undertaken for which remuneration is sought. The relevant onus is on the receiver.
4.A receiver’s remuneration is not in the same category of costs. The receiver is making application for a fair recompense for what he or she has actually done.
5.The court’s objective is to award a sum or devise a formula which will reasonably compensate the receiver for the time and trouble expended in the execution of his duties and, to some extent, the responsibility he has assumed.
6.The court will usually work off 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.
7.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.
However, as Barrett J noted in Mohamed & Anor v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) & 9 Ors [2006] NSWSC 4 at [9], the first of these principles was the subject of comment by Branson J in Wenkart v Pantzer [2005] FCA 1572. Barrett J said:
Her Honour referred to the possibility that Young CJ in Eq may have expressed the position too strongly. She considered it “sufficient to note that it will rarely, if ever, be appropriate for the Court to review a decision of a taxing officer on a line by line basis”. Analysis on a line by line basis by an appropriate court official was thus recognised as an appropriate approach.
I respectfully agree with those observations by Barrett J.
Second, the essential task of the Court, constituted by a judge, when asked to approve remuneration is encapsulated in the following observation by Barrett J in Anderson Group Pty Ltd; Mann v Anderson (2002) 20 ACLC 1607; [2002] NSWSC 764 at [12], in relation to the remuneration of a liquidator:
In the ordinary course, the process of determination comes down essentially to ensuring that the work upon which the claim was based was work undertaken in the due course of administration and that the amount claimed for having done that work is a fair and reasonable reward for it.
In Banksia Securities, Gleeson JA accepted that the essential question arising on an application by court-appointed receivers for approval of their remuneration is whether the remuneration for which approval is sought is reasonable.[13] Gleeson JA also accepted that the Court should have regard to the relevant factors specified in the Act, in particular s 425, when determining whether the remuneration is reasonable, stating that:
So much can be accepted insofar as the factors in s 425(8) may be taken as an indication of the types of considerations that inform the question of reasonableness in the present case.[14]
[13]Banksia Securities, [41].
[14]Banksia Securities, [42].
Section 425(8) of the Act provides as follows:
In exercising its powers under this section, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work performed by the 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.
Referring to the reasons of Bathurst CJ in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr[15] and making adaptations for a special purpose receivership,[16] Gleeson JA in Banksia Securities derived the following propositions:
[15][2017] NSWCA 38 (‘Sakr’).
[16]In Banksia Securities, the receivers had been appointed by the Court as special purpose receivers. Given that the Receivers in the instant case have been appointed by the Court, I do not consider that the fact that they were not appointed as ‘special purpose’ receivers means that the summary provided by Gleeson JA in Banksia Securities is not applicable here.
(a) the onus is on the receivers to establish that the claimed remuneration is reasonable. The Court’s function is to ‘determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues’;[17]
[17]Banksia Securities, [44].
(b) many of the factors set out in s 425(8), particularly paragraphs (d), (e) and (g) to (h), have as their ‘unifying theme’ the concept of proportionality. His Honour went on to say that:
The question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness.[18] The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed. This is want is encompassed in assessing the value of the services rendered.[19]
(c) the ‘mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the [receivers] are not entitled to be remunerated for it. … Provided it was reasonable to carry out the work and the amount charged is reasonable, there is no reason a [receiver] should not recover remuneration for undertaking the work’.[20]
[18]Referring to Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137 (‘Templeton’).
[19]Banksia Securities, [45] (citations omitted); Referring to Sakr, [55].
[20]Banksia Securities, [46].
The principles concerning applications in respect of liquidators’ remuneration are relevant and highly informative for applications of this type, and are well established and have been referred to in many decisions of this Court.
Gardiner AsJ summarised those principles in IMO Traditional Values Management Limited (in liq)[21] (‘Traditional Values’) at paragraphs [18] to [25]. For convenience I adopt his Honour’s summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[22]
At [60], her Honour summarised the principles to be applied by reference to the decision of the Full Court of the West Australian Supreme Court in Venetian Nominees v Conlan as follows:
(a)A summary procedure was involved, not unlike that applicable to the taxation of solicitor’s costs, which is not necessarily subject to all the rules that would apply in an action.
(b)The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment ‘bringing an independent mind to bear on the relevant issues’ even though at that point there is no objector.
(c)There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.
(d)If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made.
(e)If there are objectors to the claim or any part, the Court should then establish the validity of those objections.
[21][2012] VSC 650 (14 December 2012).
[22](2011) 85 ACSR 144 (‘Thackray’).
Consideration
The evidence
The Fourth Albarran Affidavit sets out, in considerable detail, the range of tasks performed by the Receivers and their staff which were performed and for which the Receivers seek approval of their remuneration. This range of tasks is described under the following headings (‘Work Areas’):
(a) continuing to trade the business;
(b) terminating the DOCA;
(c) arranging the sale of the business; and
(d) preparing the application to the Court to be appointed as receivers.
The descriptions given in the Fourth Albarran Affidavit under each of the Work Areas provide a clear picture as to the work undertaken by the Receivers and their staff.[23] For example, for ‘Arranging the sale of the business’, some 23 task are described (which in turn are likely to be made up of a number of discrete tasks). These include discussions with the main secured creditors in respect of the sale, negotiations with other secured creditors regarding the sale and refraining from enforcement action during the sale process, reviewing loan documents and security documents, discussions and negotiations with prospective purchasers, reviewing finance facility offers, and reviewing proposed sale agreements.[24]
[23]Fourth Albarran Affidavit, [15]–[19].
[24]Fourth Albarran Affidavit, [18].
The Fourth Albarran Affidavit also exhibits a detailed spreadsheet setting out a work in progress report (‘WIP Report’).[25] The WIP Report covers the period from 23 May 2017 to 30 June 2017. That report sets out the tasks performed, grouped by the relevant Receiver or member of his staff and then grouped under the headings of Administration, Assets, Creditor, Employee and Trade On (together, ‘WIP Categories’). The number of hours for each task and the fees for that task is set out, with a short narration to describe the task undertaken. It appears to be a typical spreadsheet generated from the Receivers’ time recording and accounting systems.
[25]This is Tab 5 to exhibit ‘RA-3’.
The WIP Report reveals the hourly rates for partners and employees of Hall Chadwick, the firm of which the Receivers are partners. From my experience in matters associated with insolvency administrations, I know these rates to be commensurate with the hourly rates typically charged by insolvency practitioners.
The Fourth Albarran Affidavit provides the following summary of hours and fees for each of the WIP Categories, as follows:[26]
[26]Fourth Albarran Affidavit, [13]–[14].
Fee Category
Sum of hours
Amount of fees
Administration
12.2
$3,800
Assets
148.5
$67,860.50
Creditor
27.8
$12,536.50
Employee
14.9
$5,080.50
Trade on
65.4
$33,437
Total
268.8
$122,714.50
Mr Albarran then states that of the total of 268.8 hours during the relevant period, 148.5 hours have been spent attempting to arrange the sale of the business and 65.4 hours have been spent on trading the business, reconciling motor vehicles and the calculation of equity positions in those vehicles, which he describes as ‘complex tasks’. From this, I assume that the WIP Category ‘Assets’ corresponds with the Work Area of ‘Arranging the sale of the business’ (as the number of hours referred to is the same), but it is not entirely clear.
At the hearing on 30 January 2018, I expressed some concern about the possibility of duplication between the fees incurred by Mr Albarran and Mr Ross as Receivers in the period from 23 May 2017 and those incurred by them as deed administrators and then liquidators.
At that hearing, I also asked for a revised version of the WIP Report, with the information set out in date order rather than grouped by employee and WIP Category, so as to better evaluate whether there had been duplication between employees or categories.
Mr Skinner indicated that a further affidavit would be provided which addressed these matters. On 23 April 2018, I was provided with the Fifth Albarran Affidavit and exhibit ‘RA-4’. That exhibit contained a revised WIP report for the work carried out as Receivers organised in the manner requested (‘Revised WIP Report’). The content is effectively the same as the WIP Report; it is just re-organised by date order. Exhibit ‘RA-4’ also includes a report containing the work in progress for the period 24 May 2017 to 30 June 2017 for the work carried out as liquidators (‘Liquidators’ WIP Report’).
Mr Albarran deposes that during the liquidation, as at 11 April 2018, fees of $180,000 have been approved by creditors, which were incurred as liquidators for tasks which included the following:[27]
[27]Fifth Albarran Affidavit, [8]–[9].
(a) document maintenance, updating control forms and task lists;
(b) lodgement of various statutory forms;
(c) preparation and lodgement of ATO and other statutory reporting;
(d) arranging a back-up of WPH’s books and records and reviewing the same;
(e) correspondence with insurance brokers in order to assess any insurance requirements;
(f) attending to various enquiries from creditors regarding the liquidation process and their claims;
(g) numerous discussions with WPH’s creditors, including secured creditors;
(h) tasks associated with creditors’ meetings and preparation of reports to creditors;
(i) investigations into insolvent trading claims, preference claims, voidable transaction claims;
(j) investigations into WPH’s business, property and financial circumstances;
(k) reporting to ASIC;
(l) tasks associated with the transition from being under the DOCA to liquidation;
(m) investigations into director and former director loans; and
(n) verification of employee claims.
The Creditors Committee’s submissions
Apart from the confusion referred to in paragraphs 17 and 18 above, in his email to my Associate on 8 May 2018, Mr Cavanagh stated the following:
(a) the Creditors Committee had not lodged an objection to the Initial Application as it was done quickly. They did not understand why additional fees were being sought and whether this was a formalisation of fees previously approved by the committee. He had raised these queries with the Receivers’ solicitors in November 2017 but had not received a response;
(b) if the amount sought in this application was additional to all other amounts previously approved, then the Creditors Committee objects as the hours claimed relate to tasks for which remuneration was already approved, and this would amount to double-dipping;
(c) if the Receivers were to request approval from the Creditors Committee, it would be rejected based on the lack of progress made by Mr Albarran and Mr Ross in recouping funds for creditors, particularly where the business has been sold [by the party who purchased it from the Receivers] back to the original owners; and
(d) the Creditors Committee sought the Court’s assistance in obtaining an answer to the queries they had raised in November 2017.
At the hearing on 6 June 2018, I explained the procedural history of this application, including the making of the Appointment Orders and the Remuneration Order, the change to this application so that it was the receivership activities in respect of which approval of remuneration was sought from the Court, and the steps I had required to be taken after the hearing on 30 January 2018. I indicated that I would treat Mr Cavanagh’s email as a submission and invited oral submissions. I also indicated that I apprehended that one of their concerns was possible duplication with other fees already approved and that on the materials I had also raised this issue with the Receivers’ solicitors at the previous hearing. In general terms, I also explained the Court’s approach when considering remuneration applications.
Mr Cavanagh made submissions to a similar effect as those in his email, adding that the committee had felt pressured to approve fees in the past. He also stated that the Creditors Committee was concerned with how long this was all taking. In relation to the fees claimed in the Amended Application, Mr Cavanagh said he had looked through them and thought they were excessive. He did not go into detail about that.
I indicated to Mr Cavanagh that issues to do with the conduct of the receivership, or the liquidation, were matters outside this application. Other than that, I have taken the submissions into account in reaching the views expressed below.
Receivers’ prima facie case for approval
I am satisfied, based on the evidence filed by the Receivers and the summary of evidence provided above, that the Receivers have made out a prima facie case for payment of their remuneration, within the meaning referred to in paragraph 30 above.
The main issue for my consideration is that of the quantum which should be approved.
Amount of remuneration to be approved
As noted above, the Receivers seek approval for their remuneration in the sum of $122,714.50 (‘Claimed Amount’).
Although a prima facie case for approval of their remuneration has been established, the Court has experienced some difficulties in reviewing the evidence so as to assess the reasonableness of the quantum claimed.
Difficulties created by the way the evidence has been presented
Some of the descriptions given in the Fourth Albarran Affidavit for each of the Work Areas relate to specific tasks performed prior to the appointment of Mr Albarran and Mr Ross as receivers, and so are more likely to be tasks performed as deed administrators.[28] Even if they were performed after their appointment as receivers, I do not consider that such tasks were undertaken in their capacity as receivers, but rather as deed administrators and then liquidators.
[28]For example, the steps taken to terminate the DOCA, most of which occurred prior to the DOCA actually being terminated on 24 May 2017, as described in paragraph [17] of the Fourth Albarran Affidavit. Another example is the work associated with advertising the business for sale via newspaper advertisements in early May 2017, some two weeks or so prior to the appointment of Mr Albarran and Mr Ross as receivers: see Fourth Albarran Affidavit, [18(a)]. An additional example is the work associated with making the application to the Court for their appointment as receivers: see Fourth Albarran Affidavit, [19].
The Fourth Albarran Affidavit is somewhat confusing in this respect, as it does not seem to me to sufficiently delineate between the tasks undertaken as receivers and those undertaken as deed administrators (or, after 24 May 2017, as liquidators).[29]
[29]I explore this further in paragraphs 63 to 66 below.
The WIP Categories and the description of ‘complex tasks’ creates further confusion in respect of the Fourth Albarran Affidavit. The Work Areas (including the detail described by Mr Albarran) which I have set out in paragraph 31 above are not then described or linked to the WIP Categories referred to above. Other than reviewing each narration in the Revised WIP Report, I have no real way of working out which specific narrations, hours and fees relate to which item.
Notwithstanding some of the concerns I have expressed in paragraphs 49 and 50 above and despite the descriptions in the Fourth Albarran Affidavit including tasks performed prior to 23 May 2017, it is clear from the Revised WIP Report that only fees from that date onwards are claimed as part of this application.
The Liquidators’ WIP Report sets out the individual entries for the Receivers and their staff, the amount of fees (separated into fees charged, billed, written off, and unbilled), hours, and the task code (the task codes are the same as the WIP Categories) for the period 24 May 2017 to 30 June 2017.[30] However, the Liquidators’ WIP Report does not contain any narrations for these entries. Therefore, while it is somewhat helpful to have that information, it does not really allow me to properly assess whether there has been duplication between liquidation and receivership tasks, or whether some of the items in the Revised WIP Report have been incorrectly classified. Of the liquidation tasks described by Mr Albarran, some of them could overlap with the receivership tasks, particularly those set out in (e) and (g) of paragraph 40 above. Mr Albarran does not state in his affidavit that there has been no duplication between the fees claimed as Receivers and the fees set out in the Liquidators’ WIP Report.
[30]The task codes are administration, creditor, assets, investigations, employee, and trade on.
The Liquidators’ WIP Report does not set out the total of the fees incurred by the liquidators, either in total or for each of the task codes. I have calculated that the Liquidators’ WIP Report for the period stipulated contains total charges of $50,994[31] and the total hours in respect of those charges is 115.80. I have not descended to attempt to calculate the hours and charges for each of the task codes.
[31]Of which $40,252.50 is recorded as billed, $1,113.50 written off, and $9,628 unbilled.
Leaving the issues with the Liquidators’ WIP Report aside, the lack of correlation between the WIP Categories and the Work Areas means that I am unable to rely solely on the descriptions given in the Fourth Albarran Affidavit of the work done.
This means that I have no option other than to review all of the individual items in the Revised WIP Report in an effort to assess the reasonableness of the remuneration claimed. It means that I cannot approach this at the level of generality of the Work Areas or the WIP Categories.
Review of the items claimed in the Revised WIP Report
Generally speaking, I am satisfied that the Receivers’ tasks included matters which were complex. I am also satisfied that there was an appropriate degree of delegation of tasks within the Receivers’ office, so that tasks which required a higher degree of skill were performed by those with more experience and seniority and that other tasks were delegated to more junior members of staff at lower charge out rates.[32] My review of the Revised WIP Report is consistent with this view.
[32]Fourth Albarran Affidavit, [12].
Further, subject to the below, I am generally satisfied that the items claimed in the Revised WIP Report are for work which was reasonably necessary for the Receivers and their staff to carry out.
I make the following comments about specific items in the Revised WIP Report:
(a) I have identified $4,821 in fees for tasks which, based on the narrations, appear to me to be more in the nature of tasks associated with liquidation. Of this, $4,962 was for tasks in connection with the disclaimer of assets/property.[33] Without more information, this is something I regard as within a liquidator’s power rather than that of a receiver. Therefore, $4,821 should be deducted from the Claimed Amount;
(b) I have identified $490 in fees for tasks where there is insufficient information to justify them as being necessary tasks,[34] and this amount should be deducted from the Claimed Amount; and
(c) I have identified $3,540 in fees for different narrations on the same day for the one person where the task looks similar enough to lead me to conclude that not all of it should be allowed.[35] I would therefore allow only half of this, so that results in a deduction of $1,770 from the Claimed Amount.
[33]Using the electronic copy of the Revised WIP Report, which is an excel spreadsheet, the items which appear to be related to disclaimer are those in lines 448-452, 455, 528, 624-628, 630-635, and 641. The other two items which appear to be liquidation items are those in lines 186 and 287.
[34]These are the items in lines 298 and 591 of the electronic copy of the Revised WIP Report.
[35]These are the items in lines 320 and 321 of the electronic copy of the Revised WIP Report.
After making the above adjustments, this leaves a figure of $115,633.50 for the Receivers’ remuneration (‘Base Amount’), which may then require further adjustment for other considerations, which are dealt with below.
Dealing with the likelihood of some duplication between the remuneration claimed by the Receivers in their role as receivers and the work performed in their role as liquidators
In response to my questions at the hearing, Mr Skinner stated that there was no duplication between the fees approved by the committee of creditors for Mr Albarran and Mr Ross in their role as liquidators and the fees claimed in the Amended Application. Given the issues I have identified in paragraph 53 above, and in light of the specific items I have identified from the Revised WIP Report which appear to be tasks associated with the liquidation rather than the receivership,[36] I am not satisfied that this submission is correct.
[36]See the matters identified in paragraph 59(a) above.
I do not consider it sufficient merely to deduct the specific items referred to in paragraph 59(a) above, as I am not satisfied that I have sufficient information to be sure that there is no other duplication between the receivership items and the liquidation items. This risk is heightened in circumstances where the task codes for the Liquidators’ WIP Report are the same as the WIP Categories used in the Revised WIP Report, particularly where there are no narrations given in the former. Given the assets to which the Receivers were appointed, namely the business of the Trust, it seems to me that the task codes in the Liquidators’ WIP Report for ‘trade on’ and ‘assets’ are highly likely to be duplicative of the corresponding WIP Categories.
This risk is further exacerbated when one compares the Fourth Albarran Affidavit with the Third Albarran Affidavit. As mentioned in paragraph 18 above, the Third Albarran Affidavit described the work done during the period 23 May to 30 June 2017 and referred to it as having been undertaken as deed administrators. The Amended Application was then filed after the directions hearing in November 2017 where the problems with the Initial Application were pointed out, and then the Fourth Albarran Affidavit followed, to set out the remuneration claimed for work done in that period as receivers. There is a great deal of similarity between the work described in the Fourth Albarran Affidavit when compared with the Third Albarran Affidavit: almost all of the descriptions are identical. Further, the amount of remuneration claimed is almost identical. The WIP report exhibited to the Third Albarran Affidavit is exactly the same as the one exhibited to the Fourth Albarran Affidavit, which is the one relied on for the Amended Application.
The Fourth Albarran Affidavit does not explain how it is to be viewed in light of the Third Albarran Affidavit, in particular, there is no explanation for how work now claimed as part of the receivership was earlier claimed as part of the deed administration period. The explanation may be as simple as an error having been made when preparing the Third Albarran Affidavit, but in the absence of evidence about it, that is just speculation on my part. It may be that the Fourth Albarran Affidavit was intended to effectively replace the Third Albarran Affidavit, but that is inconsistent with the stated reliance on both affidavits as set out in the written outline of submissions dated 23 January 2018 filed by the Receivers’ solicitors.
It is also unclear how the Third Albarran Affidavit could relate to the deed administration period, when the deed administration ended on 24 May 2017. Given that they became liquidators when the DOCA was terminated, there is a reasonable prospect that when the Third Albarran Affidavit referred to work done as deed administrators, it was referring to work done as liquidators.
The result of all of this is that I have some real concerns about the amounts claimed by Mr Albarran and Mr Ross as remuneration for their role as receivers. I have accepted their prima facie case for remuneration, however I do not accept the amount they have claimed. I do not have sufficient evidence before me to be satisfied that all of the work claimed is referable solely to the receivership.
For the reasons set out in paragraph 62 above, I will deduct from the Base Amount the entire amount in the Liquidators’ WIP Report for ‘trade on’ and ‘assets’,[37] which results in a figure of $104,278.50.
[37]Adding up the billed and unbilled items for these task codes (but excluding the written off amounts), ‘trade on’ is $7,268 and ‘assets’ is $4,087. Thus these two amounts come to $11,355.
As a result of the other concerns I have identified, there should then be a substantial discount applied to that figure of $104,278.50. I will apply a 50 per cent discount to that figure, which produces an amount of $52,139.25 (‘Revised Base Amount’). While the percentage amount is clearly quite arbitrary, given the concerns identified and the lack of information, and taking into account the fact that the liquidators’ and deed administrators’ fees have already been approved by the committee of inspection or creditors, I consider it appropriate to discount the Receivers’ remuneration in this way.
Proportionality
In response to my questions at the first hearing, Mr Skinner indicated that the Trust’s business was sold for $1.9m, with the purchaser absorbing employee entitlements of $120,000 and assuming some of the secured liabilities. I was informed that after meeting certain liabilities (which were not specified), the Receivers had a balance of around $31,000 left over after the sale. Mr Skinner said that this meant that the Receivers’ fees as claimed in the Amended Application would not be able to be met even if fully approved by the Court. At the hearing on 6 June 2018, Mr Cetinkaya, solicitor for the Receivers, stated that there was $50,000 available in funds held on trust from the receivership. This was said to be an updating of the figure provided by Mr Skinner.
Although the Receivers had the opportunity after the first hearing and were invited by the Court to do so, they did not include any of this information in the further affidavit material provided to the Court.
Thus, there was no evidence before me as to the proportionality in terms of the work done as compared with the size of the property the subject of the receivership or the benefit to be obtained from it, within the meaning referred to in paragraph 28(b) above.[38] I have no evidence as to other recoveries made by Mr Albarran and Mr Ross in their roles other than as receivers, or of any distributions to creditors.
[38]I was not provided with the exhibits to the First Albarran Affidavit, so did not have access to documents including the information memorandum regarding the sale of the business, the report to creditors dated 9 May 2017, or the then administrators’ s 439A report. While there is sufficient evidence to enable me to express the views I have, especially those expressed here and in paragraph 72 below, some further detail as to the size of the property may have been able to have been ascertained from such documents.
However, there is evidence before the Court that the administration of WPH was complex. Mr Albarran and Mr Ross functioned as administrators and then deed administrators, as receivers, and as liquidators, with some overlap between them. For a period, they were responsible for the business of WPH and the Trust continuing to trade, with all which that entails in terms of ongoing supply contracts, asset management, employee management, and relationships with creditors (which included a number of secured creditors). At the same time, they were preparing the business and assets for sale and then undertaking a sale process, which entailed review and consideration of offers and preparation of complex sale documentation, and which resulted in the sale of the business and assets. The Receivers were appointed in that role at a critical time for the sale of the business and assets of the Trust, without which a successful sale may well not have been achieved.[39]
[39]This is particularly apparent from the content of the First Albarran Affidavit and from the Reasons.
There is also evidence before the Court that Mr Albarran and Mr Ross have received approval, either by creditors or the Creditors Committee for other remuneration claims. These were for fees incurred in their roles as administrators, deed administrators, and liquidators, and come to a total of $1,014,490.75. There is an additional amount of $84,433.50 approved for their remuneration as deed administrators in the period 1 May to 24 May 2017.
Accordingly, there is difficulty in making any comparison between the remuneration, the work undertaken, the size of the property, or the recoveries for creditors at a high level across the various roles and timeframes.
Balancing the difficulties with proportionality which I have identified with the undoubted complexity of the Receivers’ task, and in light of the discounting I have already applied, I propose to apply a further small discount of 10 per cent to the Revised Base Amount to arrive at a final figure of $46,925.33, which I will round to $47,000.00. In all the circumstances, I consider this to be a suitable and reasonable remuneration incurred by the Receivers in their role as receivers.
Conclusion
Accordingly, orders will be made approving the Receivers’ remuneration in the amount of $47,000.00. The Receivers’ solicitors are requested to provide the Court with a draft form of orders to give effect to this ruling.
SCHEDULE OF PARTIES
| S ECI 2017 00123 | |
| BETWEEN: | |
| WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150) | First Plaintiff |
| DAVID ANTHONY ROSS IN HIS CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150) | Second Plaintiff |
| RICHARD ALBARRAN IN HIS CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF WESTERN PORT HOLDINGS PTY LTD (TRADING AS MAKESAFE TRAFFIC MANAGEMENT) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) (ACN 085 780 150) | Third Plaintiff |
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