REASONS FOR JUDGMENT
1 Perhaps my decision in Re Stockford Ltd (subject to a deed of company arrangement); Korda and another (as joint and several deed administrators) (2004) 52 ACSR 279 has caused insolvency practitioners some difficulties. I trust that those difficulties will be sorted out without creditors being overly burdened with the associated costs. In this case the joint administrators (Messrs Korda and Mentha) of a company which is subject to a deed of company arrangement (Clynton Court Pty Ltd) wish to have their remuneration fixed by the court. The administrators concede that the effect of my decision in Stockford, which they rightly assume I intend to apply, is that their remuneration has not been fixed in accordance with s 449E of the Corporations Act 2001 (Cth).
2 The problem arises in the following way. At the second meeting of creditors of what I will refer to as the Newmont Yandel group, the creditors resolved that each company execute a deed of company arrangement and that the plaintiffs, Messrs Korda and Mentha, be the deed administrators. Two separate resolutions concerning the administrators' remuneration were passed. The first fixed the remuneration of the administrators for the period 3 July 2003 to 29 August 2003 in the amount of $1,194,437 (exclusive of GST). The second resolution fixed their future remuneration as administrators and then as deed administrators "on the basis of hourly rates and disbursements as set out in the Report to Creditors (exclusive of GST), provided that the Administrators and Deed Administrators' remuneration be subject to majority approval and capping by the Committee of Creditors who can also vary such arrangements."
3 The deeds (there are 14 in all) were executed on 8 September 2003. Broadly speaking, the effect of the deeds is to "pool" the liabilities of the group in Clynton Court (called "Adminco") and to provide sufficient funds to Adminco to be held in a Distribution Fund to pay first, the fees, costs and expenses of, the administrators then the debts due to employees and trade creditors (which are to be paid in full) and finally a dividend of up to 40.53 cents in the dollar to the remaining unsecured creditors who are referred to as "Other Participating Creditors". The claims of all creditors are then released. The dividend to be paid to "Other Participating Creditors" is based upon an assessment of what they would receive in a winding up of the group. There are four "Other Participating Creditors" and their admitted claims total $US67,770,298.
4 The Adminco deed, which is described as the "Principal Deed of Company Arrangement", provides (a) for the deed administrators' remuneration (cl 7.2(a)), (b) for the reimbursement of all the costs, fees and expenses incurred by the administrators in connection with the performance of their duties (cl 7.2(b)) and (c) for an indemnity for any claims which may arise against the administrators in relation to the voluntary administration of the group and the administration of the deeds (cl 8.1).
5 The remuneration fixed by the deed differs from that fixed by the creditors' resolution. The deed provides that the remuneration is to be paid in accordance with a scale of hourly rates (subject to variation by the committee of creditors) whereas the resolution requires the fees to be fixed by "majority approval and capping by the Committee of Creditors". Because of this inconsistency the administrators accept, as they probably must, that it is the resolution rather than cl 7(2)(a) which is intended to be the source of their right to receive remuneration. That is the cause of the present problem. While the wording of the resolution is a little ambiguous, the administrators' accept that both the "approval" of the remuneration as well as the "capping" of that remuneration has been delegated to the committee. It is this delegation that results in the resolution falling foul of s 449E.
6 In these circumstances the administrators seek to have their fees fixed by the court pursuant to s 449E(1)(b). Although the administrators have a right to ask the court to fix their remuneration, and the court has a corresponding duty to determine that application, to my mind a judge is not the best person to undertake the task. In In re Potters Oils Ltd [1986] 1 WLR 201, 207 Hoffmann J, then a judge in the Chancery Division, said in relation to a receiver's remuneration: "[T]he court is ill-equipped to conduct a detailed investigation of receivers' charges on an itemised basis. A judge could not do so without being expensively educated by expert evidence." I do not feel that I am in any better position than the hypothetical judge to whom Hoffmann J referred. Fortunately, I have the ability to cast the burden onto someone else.
7 Ordinarily, the first port of call for fixing an administrator's remuneration is the creditors; it is to the creditors that parliament in the first instance has entrusted the power, subject always to the right of a dissatisfied party to bring the matter before a judge. In a large administration it will usually be preferable for the power to be given to a small group of creditors (such as the committee of creditors) rather than the creditors as a whole. This can be done by an appropriate order under s 447A. Indeed, that is the order I ultimately made in the Stockford case.
8 Unfortunately that approach is not available in this case. I mentioned earlier that there are four "Other Participating Creditors". These are the only creditors with an interest in the determination of the administrators' remuneration. But, for one reason or another, it would be singularly inappropriate for me to assign to them the power to fix the fees. One creditor, The J Aron Corporation, and its parent The Goldman Sachs Group Inc, (I will refer to them as Goldman Sachs) are the defendants to this application. Goldman Sachs are also the plaintiffs in what some of the correspondence on both sides suggests is a spiteful piece of litigation being conducted in the Supreme Court of New South Wales. In that action Goldman Sachs seek to have the Newmont Yandel group deeds of company arrangement (most of which have already come to an end in accordance with their terms) terminated or declared void. Serious allegations of misconduct are made against the administrators concerning the manner in which they have conducted the administrations. Another creditor is also involved in litigation against the administrators. Of the remaining two, one has had its proof of debt rejected in part and the amount disallowed is not insignificant. In this situation one can hardly be confident that the creditors would approach the determination of the administrators' remuneration with open minds. It is in this context that it has became necessary to bypass the creditors.
9 This leaves me with two alternatives. The first is to give the power to fix the administrators' fees to a Registrar, in particular a Registrar who has experience in fixing the fees of insolvency practitioners. The second alternative is to appoint an independent assessor (that is an assessor who is independent of both the court and the parties) who possesses the requisite experience. Any one of these alternatives would do, but in the end I have chosen to give the task to a Registrar because that will be the least expensive, and for that reason the preferable, option.
10 With the parties' consent I have discussed the matter with Registrar Efthim and he has indicated his willingness to deal with the application. The Registrar will be required to provide written reasons for his determination. I think it best that the Registrar be required to give reasons for I intend to make an order the effect of which will be that, while the Registrar will determine the remuneration, any dissatisfied party may come to court under s 449E(2) to review the Registrar's decision. If the Registrar provides written reasons one would expect any review to be confined to discrete areas of disagreement which can easily be identified. I have referred the Registrar to a reported decision of an assessor given in similar circumstances. The report is an appendix to the judgment of Ferris J in Re Independent Insurance Co Ltd (in provisional liquidation) (No 2) [2003] 1 BCLC 640, 651. I have also discussed with the Registrar whether he would be assisted by me giving directions regarding the material the parties should place before him. In the event, I think that no such directions should be given. The parties will obtain more than useful guidance on this score from the recently published (in England) Practice Statement - The Fixing and Approval of the Remuneration of Appointees (2004) [2004] BPIR 953. If the Registrar requires more material he will be able to give directions to that effect.
11 That is not the end of the dispute. The defendants have raised two matters that are relevant to the determination of the administrators' claims that should not be left to the Registrar.
12 The first dispute concerns the time spent and the costs incurred in the action that is pending in the Supreme Court of New South Wales. The administrators have retained solicitors to act on their behalf and the solicitors' costs have been treated as part of the costs incurred by the administrators in the performance of their duties under the Adminco deed and have been paid out of the Distribution Fund. At first glance this seems quite proper. There are at least three decisions of which I am aware (there may be others) to the effect that the administrator of a company subject to a deed of company arrangement is the appropriate person to "contradict" an application to terminate the deed. (I note that in Papua New Guinea Dockyards Limited v Adams [2005] FCA 413 at [6] I suggested that the plaintiff in such an application should join all necessary parties, which is not the same thing as securing a "proper contradictor" for the purpose of an application for declaratory relief). At any rate, the three decisions I have in mind are Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 142 FLR 188, 189, a judgment given by Santow J; Linen House Pty Ltd v Rugs Galore Australia Pty Ltd [1999] VSC 126 at [24] in which the judge was Gillard J; and Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (2001) 39 ACSR 622, 637, a decision of Austin J. Nevertheless, Goldman Sachs contend that the administrators should use the solicitors retained by the other defendants in the action (the group companies) whose interest are said to be identical with those of the administrators.
13 Now, s 449E is not concerned with a deed administrator's right to recover costs and expenses properly incurred. The legislation has left that to be covered by the deed or, in default of any provision in the deed, to be dealt with according to the applicable principles of law. While the point in dispute does not fall for determination under s 449E (because the section is concerned only with remuneration) it is best that I deal with it now rather than allow the point to be raised in yet another action between the parties.
14 The principal relief sought in the New South Wales action is that the deeds be terminated or declared void. Various statutory and common law causes of action are relied upon. In the alternative, Goldman Sachs seek to have the administrators removed from office and replaced by someone else. The foundation for that relief is an allegation that the administrators have misconducted themselves by acting partially, in effect favouring the interests of the Newmont Yandel companies over the interests of the "Other Participating Creditors". If this allegation is made good then in all likelihood the administrators will be removed from office and may be ordered to pay Goldman Sachs' costs of the action.
15 In these circumstances I do not accept that the administrators should retain other solicitors. There are any number of reasons for this conclusion, but I will content myself by mentioning only two. First, Goldman Sachs make a wholesale attack on the propriety of the administrators' conduct. If the attack is successful it could adversely affect the administrators' professional reputation. They are entitled to meet the attack head on and to do so with their own lawyers, who will devote themselves exclusively to their clients' cause without the added burden of looking after the interests of other parties. The second reason is that I do not accept the premise that lies behind the submission, namely that all the defendants make common cause. It is probably true that the administrators and the Newmont Yandel companies have a common interest in defeating the plaintiffs' case. But that is where their common interest ends. For example, if the action is lost by reason of the administrators' misconduct there is a real risk that the group companies will look to the administrators for compensation of one kind or another.
16 It follows that the administrators are entitled to recover their costs and expenses of the New South Wales action out of the Distribution Fund, because that is what the deed provides, although if found guilty of misconduct any amount taken must be reimbursed. The administrators would be entitled to the same indemnity if required to fall back on their rights at law. As to the position at law, the cases say that a person (such as a trustee, receiver, liquidator or administrator) who administers property on behalf of someone else is entitled to be indemnified for the costs of that administration, including any legal costs that may be incurred. It does not matter whether the legal costs are incurred by the person conducting the administration as plaintiff or as defendant. Nor does it matter whether the particular action in which they are incurred is won or lost. The indemnity would cover an action against the administrators, which alleges that they had acted in breach of duty. The right of indemnity is not, however, absolute. It is only a prima facie right which can be defeated in special circumstances. Thus, the right of indemnity may be lost if there is misconduct. It may also be lost if the person is guilty of gross neglect or carelessness, although the position may be otherwise if the neglect or carelessness is innocent. It all depends on the seriousness of the blunder. The cases that establish these propositions are so well known they require no citation. Nevertheless, I will mention a few: Bartlett v Wood (1861) 4 LT 692, 695; Turner v Hancock (1879) 20 Ch D 303, 305; In re Silver Mines (1882) 21 Ch D 381, 385, 386, 390, 391; Nissen v Grunden (1912) 14 CLR 297, 309, 310; Gleeson v Fitzpatrick (1920) 29 CLR 29, 38; National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268, 275, 277, 279; In re Harrison's Settlement Trusts. Morris v Harrison - Sleap [1965] 1 WLR 1492, 1497; Re Buena Vista Motors Pty Ltd (In Liq) and the Companies Act [1971] 1 NSWLR 72, 73, 76; Adsett v Berlouis (1992) 37 FCR 201, 210-212. For a recent discussion of the principles see Hypec Electronics Pty Ltd (In Liquidation) v Mead (2004) 61 NSWLR 169.
17 The second matter raised by Goldman Sachs concerns the construction of cl 28 of the Adminco deed. Clause 28 is the provision that specifies the debts to be paid out of the Distribution Fund as well as their order of priority. Clause 28 divides the Distribution Fund into four sub-funds. They are (a) the Existing Assets Pool to cover principally the administrators' costs and expenses up to the "Sunset Date" which is defined in cl 1.1 to be 22 September 2003, (b) the NAL Specific Contribution Fund out of which employees and trade creditors are to receive payment of their debts, (c) the NAL General Contribution Fund which according to cl 28.4 is to be applied "first, towards the payment of any amounts owing or to be paid to the Voluntary Administrators and the Deed Administrators … in respect of the period on or after the Sunset Date or in respect of the period up to the Sunset Date which have not been paid in full [out of the Existing Assets Pool] … and secondly towards payment of any amounts owing to Participating Creditors in respect of Trade Creditor Claims; … [and] thirdly, towards payment of up to 40.53 cents in the dollar of the Claims of Other Participating Creditors" and (d) the Liquidation Top Up Contribution which is to be applied towards payment to any creditor of the amount by which the Expected Liquidation Return of that Participating Creditor exceeded the amount they received from the other three sub-funds.
18 Goldman Sachs contend that some of the administrators' legal costs incurred prior to 22 September 2003 (the "Sunset Date") should have been (but were not) paid out of the Existing Assets Pool but were wrongly paid out of the NAL General Contribution Fund, thereby reducing the money available for the "Other Participating Creditors". The administrators deny this allegation and presumably the true facts can be determined easily enough. It is possible that the Registrar may be asked to do this. On the other hand, on the way cl 28 is drawn, if the Existing Assets Pool is insufficient to cover the administrators' costs up to the Sunset Date, resort may be had to the NAL General Contribution Fund to meet the shortfall. It appears that Goldman Sachs' argument is based upon a misconception of the effect of the deed.
19 This brings me to another issue I must decide. The issue is whether the administrators should disgorge the remuneration which they have already drawn out of the Distribution Fund (the administrators have taken some $833,887 for the period 30 August 2003 to 27 December 2004) or whether there should be an order that they retain that amount, or some part of it, as interim remuneration pending the determination by the Registrar of their actual entitlement.
20 First of all let me say that the administrators are entitled to some amount by way of interim remuneration. They have performed work in their capacity as administrators and there is no reason why they should not receive some payment for that work. I do not accept Goldman Sachs' argument that the administrators should be punished for taking their remuneration before it was fixed, by denying them any interim remuneration. It is clear that the administrators acted in good faith and in the belief that their remuneration had been fixed by cl 7.2(a) of the deed. This has turned out to be wrong because of two events, neither of which is of the administrators' doing. The first is my judgment in Stockford. The second is that as a matter of law the administrators must look to the resolution and not cl 7.2(a) of the deed as the source of their entitlement. In these circumstances it would be both wrong and unfair to withhold relief.
21 The only point which has caused me some difficulty is the amount that the administrators should receive by way of interim remuneration. Should they be entitled to retain the amount they have already taken or only a proportion of that amount? Usually fixing interim remuneration will only require a broad-brush approach, because any excess will in due course be recouped. It is always necessary to bear in mind the ability of the administrator to make repayment, in case repayment is required. If there be any doubt about that ability, it may be necessary to require the administrator to post appropriate security. As a rule of thumb, in most cases the court will be justified in awarding interim remuneration in the order of 80 to 85 per cent of the fees claimed. The Registrar has told me that in his experience of fixing liquidators' remuneration that should create a sufficient buffer.
22 The factors relevant to determining the administrators' claim for interim remuneration in this case are these. The hourly rates at which the administrators have charged their fees were agreed by the creditors, including the Other Participating Creditors. Goldman Sachs have pointed out that in another administration the administrators have charged fees at lower hourly rates. That fact is not likely to be of much importance. In determining what is a reasonable rate to charge, the starting point is the broad average or general rate charged by persons of the relevant status and qualification carrying out this kind of work: Mirror Group Newspapers plc (No 2) v Maxwell [1998] 1 BCLC 638, 648. Accordingly, the charging rate of an individual insolvency practitioner will be of little relevance.
23 The defendants also rely on the expert evidence of a chartered accountant who has expressed the view that the amount so far charged by the administrators is unreasonable and excessive. I intend to give little weight to the accountant's opinion. First, he was given only one day to consider the matter. Second, he says that to make an assessment of the reasonableness of the remuneration charged he requires much more information than he was provided. Having thus acknowledged that he was not in any position to express an opinion, the view that he has expressed is of no assistance.
24 All in all, it is, I think, reasonable to permit the administrators to retain without deduction what they have received to date as interim remuneration for the period to 27 December 2004 and to allow them to take 80 per cent of their claims for future remuneration. Of course the administrators will have to give an undertaking to pay interest on the amount (if any) which must be repaid, the rate of such interest to be fixed by the court if it becomes necessary to do so.
25 The final matter to deal with is the costs of this application. For the reasons I gave in Re Pasminco Ltd (subject to deed of company arrangement); McCluskey v Pasminco Ltd (subject to a deed of Company Arrangement) (2004) 49 ACSR 470, 481-482, the costs of all parties should be costs in the administration of Adminco. This is not a case, such as In re Keeler's Settlement Trusts; Keeler v Gledhill [1981] Ch 156, 166, where the costs should be borne by the administrators.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.