13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd

nt in the application) Lawrence Harpley & Garry Harpley (Fourth Respondent in the application) Representation: Counsel: S Golledge SC/ H Somerville

Solicitors: William James File Number(s): 2018/91831 (018)

Background and evidence

1. This is an application by Mr Cook as voluntary administrator, Court-appointed receiver and liquidator of Fearndale Holdings Pty Ltd (in liq) ("Fearndale") to establish his entitlement to be paid costs and remuneration from trust assets and for approval of the quantum of that remuneration for the period to 22 May 2020. Although this application is brought in proceedings which have been heavily contested, as will emerge below, none of the parties to the proceedings or the creditors of Fearndale have opposed the application.
2. I should first set out the background to the application, which I have largely drawn from my earlier judgment in Re Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2019] NSWSC 1810. By way of background, Fearndale has been, since 10 January 12007, the trustee of the Fearndale Trust ("Trust"). It was placed in administration on 12 March 2018 by a secured creditor, Consolidated Capital and Funding Pty Ltd ("CCF"). Mr Cook was initially appointed as voluntary administrator to Fearndale on 2 May 2018, in replacement of the then voluntary administrators who had been appointed by CCF and was appointed receiver and manager of the property of the Trust on 4 December 2018.
3. Fearndale owned certain land ("Land") at Luddenham in New South Wales, which was sold by Mr Cook on 19 November 2019 in his capacity as voluntary administrator appointed to Fearndale. The Plaintiffs in the proceedings, the Messrs Harpley, are directors of Fearndale and own a substantial percentage of its shares. Fearndale guaranteed certain obligations of another entity, Equivest Holdings Pty Limited ("Equivest") under two loans made by Australia and New Zealand Banking Group Limited ("ANZ") to Equivest. On or about 10 December 2014, ANZ assigned the Term Loan, the Overdraft Facility, Fearndale's guarantee and the mortgage and its rights thereunder to a Defendant in the proceedings, CCF. Equivest and Fearndale did not make payments to ANZ or CCF in respect of the relevant loans from at least 19 December 2014.
4. Disputes arose between, inter alia, Fearndale and CCF and, by orders made by consent on 2 May 2018, Leeming JA (sitting at first instance in the Corporations List) ordered, inter alia, that there be a referral under rr 20.14, 20.15 and 20.17 of the Uniform Civil Procedure Rules 2005 (NSW) to a referee for hearing and determination of the reasonable and proper amounts to which CCF was entitled to receive out of the proceeds of the sale of the land owned by Fearndale in satisfaction of its entitlements under the guarantee and mortgage, including receivers' fees and expenses. CCF subsequently assigned its interest in the relevant loan and securities to Australian Lending Investments Pty Ltd ("ALI"). By my judgment in Re Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) above, I adopted the referee's report and made certain orders.
5. On 19 November 2019, a sale contract for the Land completed at a purchase price of $14 million plus GST. By orders made by consent, an amount of just under $3.4 million was then paid to the registered first mortgagee of the Land, ALI as assignee of a debt and securities, including real property mortgage, from CCF and the amount of $10,329,771.72 was paid into Court on or about 19 November 2019.
6. On or about 6 March 2020, an amount of $2,507,162.37 was paid from the funds in Court to Fearndale, and a balance of $7,822,609.35 remains as funds in Court. In his ex tempore judgment ordering that payment, Gleeson JA (then sitting at first instance in the Corporations List) observed that: "The materials before the Court make clear that the money paid into Court came from the proceeds of sale of land owned by Fearndale at Luddenham in the State of New South Wales. The parties have taken a sensible course of identifying the difference between the amount of their potential claims and the amount that has been paid into Court, with the consequence that a residual amount may be conveniently paid to the owner of at least part of the funds, namely Fearndale, the owner of the land that generated the funds paid into Court. I am satisfied that it is appropriate to make the order sought in relation to payment out of part of the monies held in Court to Fearndale. The parties have agreed to a timetable for preparation of points of claim and points of defence, and service of evidence and submissions to enable their competing claims to the balance of the monies paid into Court to be determined in an expeditious fashion."
7. Mr Cook previously sought approval for his remuneration at meetings of creditors held on 6 March and 12 May 2020 and that approval was not obtained. Creditors have been given notice of this application and no creditor has sought to be heard in opposition to it, notwithstanding that several of Fearndale's creditors and contributories, including ALI, Equivest and the Messrs Harpley have been involved in ongoing and wider proceedings in respect of the liquidation.
8. In a further hearing that commenced on 7 July 2020, the parties have advanced competing claims to funds paid into Court by Fearndale. The parties have now proposed consent orders to be made by the Court, and judgment will be delivered today in that regard.
9. In this application, made by Amended Interlocutory Process filed, by leave, on 13 July 2020, Mr Cook seeks a determination under s 60-10 of the Insolvency Practice Schedule (Corporations) that he is entitled to receive remuneration for work performed in relation to the external administration of Fearndale for the period commencing 5 May 2018 and ending 22 May 2020 in the substantial amount of $1,213,420, exclusive of GST, and an order that the costs of the application be costs in the external administration. By his Points of Claim filed on 16 March 2020, Mr Cook pleads a "salvage" claim, in respect of work done to secure possession of the Land; undertake a sale campaign in respect of the Land; participate in several proceedings concerning claims made by third parties in respect of the Land; and conclude a sale of the Land. Mr Cook refers to several affidavits filed in the proceedings which set out the work done in that respect.
10. By his Points of Claim, Mr Cook pleads that the sale of the Land was achieved by reason of the Salvage Efforts (as defined) and the funds in Court were created by reason of those efforts. Mr Cook also contends that, by reason of ss 443D-443F of the Corporations Act 2001 (Cth), or a right of indemnity or exoneration from the property of the Fearndale Trust for remuneration and expenses, or by reason of the equitable principle of salvage, he is entitled to sufficient part of the Balance (as defined) to enable the discharge of his Salvage Claim (as defined). Mr Cook also pleads the fact of proceedings brought by a third party, Drama Unit Pty Ltd ("Drama Unit") against Fearndale, and against Mr Cook in his capacity as administrator of Fearndale, advancing several allegations in respect of the status of a mining licence in relation to the Land. Mr Cook notes that he is defending those proceedings and will incur costs and expenses in doing so, and claims a right of indemnity from Fearndale's property in respect of the defence of those proceedings.
11. By paragraph 21 of the Points of Claim, Mr Cook pleads that the Salvage Claim has priority over all other claims to the Balance, including any of ALI, Equivest, the former administrators or the Messrs Harpley, under the principles of salvage described in Re Universal Distributing Company Ltd (in liq) [1933] HCA 2; (1993) 48 CLR 171 and Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307. Alternatively, Mr Cook pleads that that claim takes priority after the payment of any priority claims, as defined. The question of priority between those claimants does not need to be determined since it is not apparent that the proceeds of sale of the Land are likely to be insufficient to meet each of their proper claims.
12. Mr Cook relies on his affidavits dated 1 May 2020 and 22 May 2020 in respect of the application, and on exhibits TJC-9, TJC-10 and TJC-11 to those affidavits (now Exhibits F2, F3 and F4 in the wider application before the Court as well as this application) and on a further affidavit of Mr Laba, one of his employees. By his affidavit dated 1 May 2020, Mr Cook referred to the circumstances of his appointment as administrator of Fearndale and to the investigations that led him to identify the Land as held by Fearndale as trustee for the Fearndale Trust and to his subsequent appointment by the Court as receiver and manager of all property held by Fearndale as trustee for the Fearndale Trust. His evidence was that most, if not all, of the tasks undertaken by him or at his direction were undertaken in his capacity as administrator of Fearndale and as receiver and manager of the property held by Fearndale on trust for the Fearndale Trust (Cook 1.5.20 [13]).
13. Mr Cook set out an extensive chronology of the administration, over some 10 pages and 66 paragraphs of his affidavit, which amply identified the complexity of the administration. He referred to claims by third parties asserting an interest in the Land, including an unregistered leasehold interest claimed by Drama Unit; a claim by CCF that it was a secured creditor of Fearndale owed a debt of, at the time of his appointment, at least $1.618 million; a claim by Epic Mining Pty Ltd ("Epic Mining") pursuant to a lease dated August 2010; a claim by Equivest that it was also a secured creditor of Fearndale and held security over the Land; claims by the Messrs Harpley, who were directors of the Company, to a vendors' lien over the Land and a life estate in part of the Land; and a claim by the former receivers and managers of the Land, appointed by CCF, to a lien for their fees. He also refers to valuation advice he obtained in respect of the Land as encumbered by Drama Unit's interest, which indicated a value significantly less than he ultimately achieved in the sale process.
14. Mr Cook also referred to steps taken in the conduct of the administration, including the issue of examination summonses and orders for production directed to investigating, inter alia, whether the Land was held by Fearndale as trustee of the Fearndale Trust and issues relating to the use of the Land and dealings between Fearndale and Epic Mining and Drama Unit. There is evidence of the substantial analysis which was undertaken by Mr Cook and members of his staff following the public examinations to identify the conclusions that could be drawn from them (Ex F2, 32ff).
15. Mr Cook also refers to proceedings brought by Drama Unit in this Court, the history of which is evident from the Court file and from judgments at first instance and in the Court of Appeal, including Re Fearndale Holdings Pty Ltd (admin apptd) [2019] NSWSC 478; Re Fearndale Holdings Pty Ltd [2019] NSWSC 645 and Re Drama Unit Pty Ltd [2019] NSWSC 1169. Mr Cook also refers to steps which he took to restrain ALI from taking enforcement action in respect of the Land and to the steps taken to obtain further orders from the Court to facilitate a sale of the Land. Mr Cook also tendered a printout of Court attendances in the matter, which runs for some 50 pages in relatively small print between 27 March 2018 and 24 February 2020 and does not include more recent attendances in the matter (Ex A3).
16. Mr Cook in turn set out the basis of the calculation of his remuneration and time recording, in categories including attendances at Court; involvement in the proceedings brought by Drama Unit against Fearndale and Mr Cook; the examination process; investigations of property; dealing with creditors; and conducting the sale process. Some of these categories reflect the particularly litigious character of this voluntary administration. Mr Golledge also drew attention to work-in-progress ("WIP") schedules maintained by Mr Cook's firm which allocated the work done by person and by category across the several categories addressed in Mr Cook's evidence (Ex F2, 31). Mr Cook also tendered WIP records, comprising nearly 180 pages, arranged by category, identifying the person who did the relevant work and the nature of the work done (Ex F2, 389ff). I have, consistent with the authorities, undertaken a broad review of those narratives, without seeking to review each attendance or the time spent on it. The schedule of work done by category and by person was updated by a further schedule for the period from 1 May to 20 May 2020 (Ex F4, 392-393).
17. Mr Cook also addressed the hourly rates that he charged and his experience as to rates charged by other practitioners in the Sydney market, and indicated the basis on which he considered it appropriate to calculate his remuneration on a time charged basis. Mr Cook's hourly rates as at 1 July 2017, and as increased at 1 July 2018 were in evidence (Ex F2, 26-27). Mr Cook's evidence that his and his firm's hourly rates were not above market was supported by evidence that the rates of Fearndale's former voluntary administrator, Mr Calabretta, were generally higher than Mr Cook's rates (Ex A2) and the hourly rates of Mr Albarran, who was appointed as receivers and managers to Epic Mining, also generally exceeded Mr Cook's hourly rates (Ex A4). Mr Cook also referred to the distribution of work between members of his staff, and the basis on which work was allocated between staff having regard to their experience and the complexity of the particular work. I recognise that in this case, the extent of litigation and the attitude of claimants to the Land were such that the work had a higher degree of complexity than would ordinarily be the case.
18. Mr Cook then addressed, in detail, each of the categories of costs claimed, including in respect of the particular proceedings brought by and against the parties to whom I have referred above, and to the work undertaken in respect of the sale process and public examinations and orders for production. Mr Cook also addressed work done to secure and maintain the Company's property including the Land, including steps taken to restrict unauthorised access to the Land and dealings with the New South Wales Environmental Protection Authority. Mr Cook also referred to steps undertaken, by way of investigation, to address uncertainties as to the Fearndale Trust and confirm the position in respect of the ownership of the Land and steps taken to value the Land and the subsequent marketing and sale process for the Land.
19. By his further affidavit dated 22 May 2020, Mr Cook addressed the payment of disbursements and costs included in his claim in respect of the Land, which include marketing fees in respect of the Land, legal expenses, accounting and tax expenses and disbursements such as valuation expenses that Mr Cook had paid during the administration. Mr Cook also tendered schedules of disbursements paid by his solicitors and by his firm, including substantial disbursements incurred prior to the availability of any access to funds generated by the sale of the Land (Ex A6). Mr Cook also tendered evidence as to the invoices paid by his firm in the course of the matter (Ex F4, 1ff) and the narrative of work done by his solicitors in the conduct of the matter including in the multiple proceedings (Ex F4, 6ff). Some of those disbursements and costs have now been paid by the amount released to Fearndale from funds paid into Court by the orders made on 3 March 2020 to which I have referred above. Mr Cook identifies the remaining unpaid disbursements and costs, including legal fees, accountancy fees and Counsel's fees for ongoing work in the proceedings. Mr Cook also responded to other evidence led in the wider proceedings, which it is not necessary to address for the purposes of this application.
20. By a further affidavit dated 6 July 2020, Mr Laba, who is an accountant employed by Mr Cook, refers to the creditors' meetings on 6 March 2020 and 12 May 2020 which rejected resolutions for the approval of Mr Cook's remuneration. That affidavit annexes the remuneration report issued to creditors on 27 February 2020 and a further remuneration report issued to creditors on 5 May 2020. The remuneration reports in turn provided a detailed account of the work done by, and costs incurred, by Mr Cook, which are also addressed in the affidavit evidence to which I have referred above. I have not neglected the fact that creditors did not approve the remuneration claimed at the relevant meetings, but the Court has jurisdiction to deal with the claim for remuneration in those circumstances, and it is plainly not tenable that extensive work should be undertaken by insolvency practitioners who are not remunerated for that work.
21. Mr Laba also refers to notice given to creditors on 12 June 2020 of Mr Cook's intention to apply for orders approving his remuneration from the Court, which included providing copies of his affidavits dated 1 May 2020 and 22 May 2020, without exhibits, to creditors. Many of the major creditors of Fearndale are aware of the application, in any event, by reason of their involvement in the wider proceedings. Mr Cook also notified the Australian Taxation Office of the application, although it has not sought to be heard in this application.
22. In submissions, Mr Golledge, who appears with Mr Somerville for Mr Cook, summarises the affidavit evidence. He points to the fact that Mr Cook was appointed as voluntary administrator by a Court order made by Leeming JA (then sitting in first instance in the Corporations List) with the consent of the Messrs Harpley, CCF (which was at the time the first mortgagee of the Land), the then voluntary administrators of Fearndale and the receivers of Epic Mining in resolution of then ongoing litigation. At the time of Mr Cook's appointment, the Land had been valued at a substantially lower amount than was ultimately realised by Mr Cook on its sale, and was subject to an existing lease to a third party, Drama Unit, which Mr Cook considered rendered it less attractive to a purchaser. It was also proximate to the site of the proposed second Sydney airport, which would potentially make it more attractive to a purchaser.
23. Mr Golledge also refers to the range of claims made by third parties, including some of the entities to which I have referred above, seeking to establish rights to the Land and to the various attempts made by those third parties, at various times, to challenge the control of the Land which had been conferred on Mr Cook by the Court orders. Mr Golledge points to the fact that Mr Cook met, from his own resources, the significant costs of a valuer in respect of the Land and also secured the consent of his solicitors to defer claims for legal fees and recoupment of disbursements in respect of the sale process for the Land. Mr Golledge points out that Mr Cook ultimately achieved a sale of the land at more than three times the value that would have been expected had the lease claimed by Drama Unit remained in place, and that the remuneration he now claims represents about 8.6% of the sale proceeds of the Land, in circumstances where the realisation process has been contested at every step.

Mr Cook's claim for remuneration, costs and expenses from trust property

1. As I noted above, Mr Cook seeks an order to establish his right to remuneration, costs and expenses from the proceeds of sale of the land and relies on Fearndale's right of exoneration or indemnity from the Fearndale Trust and on "salvage" principles to support that order. By clause 10.6 of the Trust Deed for the Fearndale Trust (Ex A1), Fearndale was entitled to be indemnified out of the assets comprising the Trust Fund (as defined) against liabilities incurred by it in the execution or attempted execution or as a consequence of a failure to exercise any of the trust authorities, powers and discretions under the Trust Deed or by virtue of being the Trustee. The case law, which I address below, recognises that the liquidator of a trustee company may, in a proper case, be allowed payment of his or her remuneration, costs and expenses from trust assets.
2. Broadly, Fearndale as trustee of the Trust has a right to be indemnified out of and exonerated from the assets of the Trust in respect of all liabilities that it has properly incurred as trustee of that trust, arising under the trust deed, under s 59(4) of the Trustee Act 1925 (NSW) and at general law: Octavo Investments v Knight (1979) 144 CLR 360 at 367; Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [49]); Re Glenvine Pty Limited (in liq) [2020] NSWSC 866. A right to indemnity and exoneration constitutes a "proprietary interest" in the assets of the Trust and that interest gives Fearndale a charge or right of lien over those assets: Octavo Investments v Knight above at 367 and 370; Commissioner of Stamp Duties v Buckle above at [49]-[50]; Bruton Holdings Pty Ltd v Commissioner of Taxation [2009] HCA 32; 239 CLR 346 at [43]; Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 368 ALR 390 at [32], [80] and [84]. In Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth above, the plurality observed (at [32]-[33]) that: "The power of exoneration, like that of reimbursement, has been described as conferring upon the trustee "a proprietary interest" in the trust assets. These labels, "trust assets" and the trustee's "proprietary interest", describe the combination and effect of the legal and equitable rights which the trustee holds on trust. Hence, where a trustee has legal title, as well as equitable or statutory powers of indemnity that are concerned with ways in which the legal title can be used, the legal title is not independent of those powers of indemnity. The legal title held by the trustee has thus been described as subject to an equitable charge or lien in favour of the trustee to secure the powers of indemnity. As this Court explained in Chief Cmr of Stamp Duties (NSW) v Buckle, the "trust assets" are subject to competing "proprietary rights, in order of priority, of the trustee and the beneficiaries". The trustee's rights take priority over those of the beneficiaries to the extent of the trustee's powers of indemnity. Where the "trust assets" need to be sold to reimburse or exonerate the trustee, the beneficiaries' rights have lower priority than the trustee's rights. A court may authorise the sale of assets held by the trustee so as to satisfy the power of indemnity, as a step in the process of the trustee exonerating itself from authorised liabilities, in the same manner as any other equitable charge. This well-established priority that the trustee's rights have over the equitable rights of the beneficiaries was justified in Re Johnson; Shearman v Robinson [(1880) 15 Ch D 548 at 552] by Jessel MR on the basis that: "it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities; therefore the Court says to him, You shall not set up a trustee who may be a man of straw, and make him a bankrupt to avoid the responsibility of the assets for carrying on the trade."" [citations omitted]

Mr Cook's application for approval of his remuneration

1. Next, Mr Cook seeks approval of his remuneration under ss 60-5 and s 60-12 of the IPSC. Section 60-5 of the IPSC provides that an external administrator of a company is entitled to receive remuneration for necessary work properly performed by that external administrator in relation to the external administration, in accordance with any remuneration determinations for the external administrator made under s 60-10) of the IPSC.
2. Section 60-10 of the IPSC relevantly provides that: "(1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made: (a) by resolution of the creditors; or (b) if there is a committee of inspection and a determination is not made under paragraph (a)--by the committee of inspection; or (c) if a determination is not made under paragraph (a) or (b)--by the Court. Note: For determinations made by the Court, see also section 60-12 (matters to which the Court must have regard). (2) A determination, specifying remuneration that an external administrator of a company in a members' voluntary winding up is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made: (a) by resolution of the company at a general meeting; or (b) if a determination is not made under paragraph (a) - by the Court. Note: For determinations made by the Court, see also section 60-12 (matters to which the Court must have regard). (3) A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways: (a) by specifying an amount of remuneration; (b) by specifying a method for working out an amount of remuneration. (4) If a determination under this section specifies that the external administrator is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of remuneration worked out on a time-cost basis that the external administrator is entitled to receive. …"
3. Mr Golledge also draws attention to s 60-12 of the IPSC which provides that: "In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60- 11, 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 by the external administrator was necessary and properly performed; (b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed; (c) the period during which the work was, or is likely to be, performed by the external administrator; (d) the quality of the work performed, or likely to be performed, by the external administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator; (f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the external administrator 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 external administrator; (i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors; (j) if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work; … (m) any other relevant matters."

Orders

1. The Court makes the following orders and declaration: 1. A determination pursuant to section 60-10(1)(c) of the Insolvency Practice Schedule (Corporations), being schedule 2 to the Corporations Act 2001 (Cth) (IPS) that Mr Timothy James Cook (Liquidator), being the former voluntary administrator and current liquidator of the Third Plaintiff, is entitled to receive remuneration for necessary work properly performed in relation to the external administration of the Third Plaintiff for the period commencing 5 May 2018 and ending 22 May 2020 in the amount of $1,213,420.00 (exclusive of GST). 2. An order that the costs of the Liquidator of the Amended Interlocutory Process be costs in the external administration, within the meaning of section 5-15 of the IPS, of the Third Plaintiff. 3. A declaration that any amount paid to the Liquidator or the Third Plaintiff from the Funds in Court in this proceeding and the monies previously paid out to the Liquidator pursuant to the orders made on 2 March 2020 in this proceeding, is charged, in favour of the Liquidator with payment of the following: a. the remuneration amount determined by Order 1; b the costs the subject of order 2; and c the reasonable and proper disbursements including legal costs incurred by the Liquidator in connection with the investigation, care, preservation and sale of the land at 275 Adams Road Luddenham ( the "Land") and of investigating and protecting the right of indemnity of both the Liquidator and the Third Plaintiff against the Land and the proceeds of sale of the Land.

Amendments 23 July 2020 - Correction to case name. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 July 2020