Applicant v Defendant

1 Glenn Anthony Crisp, the liquidator ('Liquidator') of Imagebuild Group Pty Ltd ('Company') applies by way of originating process filed 27 November 2018 as subsequently amended[1] for the following:

(a) Approval, pursuant to s 477(2B) of the Corporations Act 2001 (Cth) ('Act'), of the Liquidator entering into a litigation funding agreement ('Funding Agreement Application'); and

(b) Approval, pursuant to s 473(3)(b) of the Act, of the Liquidator's remuneration as follows:

(i) For the period 16 August 2017 to 6 August 2018, remuneration in the amount of $360,244.14 (excluding GST) ('First Period');

(ii) For the period 7 August 2018 to 30 September 2018, remuneration in the amount of $100,875.08 (excluding GST) ('Second Period'); and

(iii) Internal disbursements in the sum of $900 (excluding GST)

2 The Liquidator effectively relies on three affidavits affirmed by him in support of his application:

(a) Affidavit affirmed 16 October 2018 ('First Affidavit');

(b) Affidavit affirmed 16 November 2018 ('Second Affidavit'); and

(c) Affidavit affirmed 30 January 2019 ('Third Affidavit').[2]

3 Both applications are opposed by the Deputy Commissioner of Taxation ('DCT'), a creditor of the Company. The DCT made oral submissions in respect of the applications, and provided a notice of objection in respect of the Remuneration Application (referred to in more detail below), but did not lead any evidence.

4 The sole director and shareholder of the Company is Mr Brett Spits.[3]

5 The Company was engaged in the construction of multi-dwelling residential developments within the Melbourne metropolitan area. It had a turnover of approximately $32m in the 2015 financial year and $30m in the 2016 financial year.[4]

6 The Company had ceased trading prior to the Liquidator's appointment.[5]

7 On 16 August 2017, this Court made orders winding up the Company and appointing Mr Crisp as liquidator.[6]

8 The work performed by the Liquidator will be discussed in more detail below, but at this stage, I provide the following summary:

(a) The Liquidator has investigated the affairs of the Company, a process which has been hampered by Mr Spits' failure to provide the statutory report as to affairs ('RATA') and his lack of co-operation with the Liquidator, along with the Liquidator not having access to all of the Company's books and records;[7]

(b) The Liquidator investigated intercompany transactions between the Company and another company called SFOPPS Pty Limited (in liquidation) ('SFOPPS'). The former director and shareholder of SFOPPS is Ms Theresa Spits, the mother of Mr Spits. SFOPPS went into liquidation on 8 December 2016 and following the Liquidator's investigations, he lodged a formal proof of debt in the liquidation of SFOPPS in the amount of $14,334,606.65 ('SFOPPS Debt'). Given that SFOPPS is in liquidation, the extent to which the SFOPPS Debt, or part of it, may be recoverable is still to be ascertained;[8]

(c) The Liquidator dealt with seven legal proceedings in which the Company was a party, including four applications by the Company to set aside statutory demands issued by creditors ('Statutory Demand Proceedings') and a criminal proceeding in the Magistrates Court of Victoria where the Company was a defendant in a proceeding brought by the Victorian WorkCover Authority regarding breaches of the Occupational Health and Safety Act 2004 (Vic) ('Criminal Proceeding'). In addition, the Liquidator was summonsed to appear in the County Court of Victoria on 25 May 2018 to produce documents in a proceeding initiated by the Commonwealth Bank of Australia;

(d) The Liquidator dealt with three separate notices issued by the Australian Taxation Office ('ATO') pursuant to s 353-10 of Schedule 1 to the Taxation Administration Act 1953, requiring the Liquidator to give information and produce documents regarding the liquidation of the Company ('ATO Notices');

(e) The Liquidator identified potential preference payments, including one to the ATO for $312,523.36 which the ATO initially rejected. After providing further information, the Liquidator's claim against the ATO was settled for $239,530.49 and that has been paid by the ATO to the liquidator ('ATO Preference Payment').[9] The liquidator has so far identified a further 8 transactions between creditors and the Company totalling $2,203,030.07 which he considers to be potential preference payments and therefore voidable, which he wishes to pursue ('Preference Claims');[10]

(f) The Liquidator identified the asset position of the Company. I need not set this out in any great detail, but suffice to say here that apart from the claim made in the SFOPPS liquidation regarding the SFOPPS Debt, the ATO Preference Payment and any other recoveries made by the Liquidator (including the Preference Claims), there are no realisable assets of the Company.[11] Further, the Liquidator identified, from searches of the personal property securities register, that the Company had significant encumbered assets, including luxury sports cars which were subject to finance. He was not able to locate any of these assets and was told by Mr Spits that various creditors of the Company had taken them in lieu of payment of outstanding amounts but no details in respect of this were provided by Mr Spits. An insurance claim made by the Company in relation to a motor vehicle accident was settled by the Liquidator for $13,385;[12] and

(g) As at 8 August 2018, the Liquidator estimated that the Company had 294 unsecured creditors in the sum of $19,678,261.89.[13]

Notification to creditors of the Liquidator's intention to make the Funding Agreement Application and the Remuneration Application

9 On 22 October 2018, the Liquidator sent the following documents to certain creditors:[14]

(a) A Form 16 notice of intention to apply for remuneration, which also included notice of the intention to make an application under s477(2B) of the Act; and

(b) A letter referring to the intention to make the applications and providing a website link from which a copy of the First Affidavit could be downloaded, with an invitation to request a mailed copy of the affidavit if the creditor did not have access to the internet.

10 The persons to whom this material was sent were those required by the operation of r 9.2 of the Supreme Court (Corporations) Rules 2013.[15] Relevantly, these persons are those creditors who were present, in person or by proxy, at an meeting of creditors, and Mr Spits (being a member of the Company whose shareholding represents at least 10% of the issued capital of the Company).

11 The Liquidator says that he did not receive any objections to the remuneration claimed during the 21 day notice period prescribed under r 9.2(3) of the Supreme Court (Corporations) Rules 2013.

12 On or around 13 December 2018, the DCT provided a notice of objection to the remuneration claimed by the Liquidator ('DCT Notice of Objection').[16]

13 The proceeding was listed before Gardiner AsJ on 14 December 2018. On that date, his Honour made directions that the Liquidator file any further affidavit material in reply to the DCT Notice of Objection by 31 January 2019; the DCT file any reply to the Liquidator's further material by 15 February 2019; and the proceeding be listed before me for hearing on 5 March 2019.

Except with the approval of the Court, or of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a [sic] an agreement under which a security interest arises or is created) if:

(a) without limiting paragraph (b), the term of the agreement may end; or

(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance,

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

15 In considering applications under s 477(2B), the Court's role is not to evaluate the Liquidator's commercial decision, but to ensure that the Liquidator is not exercising their commercial decision based on some impropriety, or because of an error of law, or in bad faith.[17] In doing so, however, the Court does not act as a mere rubber stamp.[18]

16 In Re City Pacific Limited,[19] Brereton J of the Supreme Court of New South Wales referred to these principles and stated that the main consideration in determining whether to give approval 'is the impact of an agreement on the duration of the liquidation and whether it is, in all the circumstances, reasonable in the interests of the administration.'[20]

17 There are several cases in which courts have, in applications under s 477(2B), considered proposals to enter into liquidation funding agreements. In Leigh re King Bros,[21] Austin J of the Supreme Court of New South Wales summarised the relevant factors as follows:

In summary ... the relevant factors include the following:

(i) the liquidator's prospects of success in the litigation;

(ii) the interests of creditors other than the proposed defendant;

(iii) possible oppression in the bringing of the proceedings;

(iv) the nature and complexity of the cause of action;

(v) the extent to which the liquidator has canvassed other funding options;

(vi) the level of the funder's premium;

(vii) the liquidator's consultations with creditors;

(viii) the risks involved in the claim (including the amount of costs likely to be incurred in the proposed litigation, the extent to which the funder is to contribute to those costs, and the extent to which the funder is to contribute to the costs of the defendant in the event that the action is not successful, or towards any order for security for costs).

18 In Re City Pacific Limited, Brereton J observed that unlike a direction under s 479(3) of the Act,[22] an approval under s 477(2B) 'affords no protection or immunity to a liquidator in respect of complaint or criticism about the liquidator's commercial judgment in entering into the transaction once given the power to do so.'[23] His Honour went on to refer to the factors set out in the preceding paragraph, stating that:[24]

While it is true that those considerations can be identified from the authorities, they are, in my view, much more relevant where a direction is sought that the liquidator would be justified in entering into such an agreement. That is because those considerations are relevant to an evaluation of the propriety of the liquidator's judgment, and whether it should receive the protection that flows from a s 479 direction. Although it cannot be said they are irrelevant in an application under s 477(2B), they are, in my view, of significantly less moment in that context. The real issue for the Court on an application under s 477(2B) is whether any prolongation of the liquidation that would be occasioned by the relevant agreement, is warranted by the offsetting benefits that would flow from it.

19 In the August 2018 Report, the Liquidator sought written proposals from creditors to pursue litigation or investigations to further investigate claims regarding insolvent trading, the Preference Claims and any other voidable transactions, and examination of Mr Spits and other persons ('Litigious Matters'). He provided an estimate that the costs associated with pursuing these matters may be in the range of $70,000 to $100,000.[25] He indicated that at the creditors' meeting scheduled for 23 August 2018 ('Creditors' Meeting'), he intended to seek a resolution from creditors authorising him, pursuant to s 477(2B) of the Act, to enter into agreements for longer than 3 months so as to pursue the Litigious Matters.[26]

20 The resolution sought by the Liquidator in this regard were not passed at the Creditors' Meeting.[27] As I understand it, no creditors have made written proposals to provide funding for the Liquidator to pursue the Litigious Matters.

21 The Liquidator therefore seeks Court approval to enter into an agreement with a third party litigation funder. He says that without third party litigation funding, he would be limited in his ability to recover further assets for the benefit of creditors.[28]

22 The Liquidator proposes to use Pretium Litigation Funding Pty Ltd ('Pretium') as the third party litigation funder.[29] He has provided to the Court and to the DCT a copy of the draft litigation funding agreement that would be used by Pretium if approval is obtained ('Pretium Draft Agreement').[30]

23 In summary, the main features of the Pretium Draft Agreement are as follows:

(a) The legal proceedings contemplated are public examinations under ss 596A and 596B of the Act, and any potential claims which may arise out of those examinations;

(b) Pretium provides the Liquidator with a facility to cover liability for adverse costs and for fees (court filing and hearing fees, service fees, transcript fees and counsel's fees) and disbursements;

(c) The right to make decisions concerning the conduct and resolution of the legal proceedings always remains with the Liquidator;

(d) The legal practitioners to be retained in respect of the legal proceedings are not named in the Pretium Draft Agreement, but will be in the final version. It is clearly contemplated that their retainer will be consistent with the relevant provisions of the Pretium Draft Agreement;

(e) The legal practitioners retained in respect of the legal proceedings shall at all times take their instructions exclusively from the Liquidator;

(f) The legal practitioners retained in respect of the legal proceedings shall not have any recourse to the Liquidator for payment or reimbursement of their legal costs, except as provided for under the agreement;

(g) The legal costs of the legal practitioners will be calculated by aggregating:

(i) Professional costs in accordance with their retainer;

(ii) All costs and expenses properly incurred by the legal practitioners in the legal proceedings (excluding the fees and disbursements as referred to in paragraph (b) above);

(h) The gross amount recovered by the Liquidator in relation to the legal proceedings is to be paid to the trust account of the legal practitioners, and then distributed as follows:

(i) Firstly, to Pretium by way of reimbursement of the fees and disbursements paid for the legal proceedings;

(ii) Secondly, in payment of the legal costs of the legal practitioners in relation to the legal proceeding;

(iii) Thirdly, 35% of the balance of the sum remaining after the above two deductions is to be paid to Pretium; and

(iv) Finally, the balance remaining to the Liquidator.

(i) If the Liquidator, acting reasonably and following consultation with the legal practitioners and Pretium, determines to discontinue a legal proceeding at any time, Pretium shall have no recourse against the Liquidator for fees and disbursements having been incurred or expended to that point in time.

24 Counsel for the Liquidator submitted that absent the funding agreement, litigation was unlikely and therefore further recoveries by the Liquidator were unlikely. He referred to Marsden v Screenmasters Australia Pty Ltd, in the matter of Cardinal Group Pty Ltd (in liq),[31] where Markovic J of the Federal Court considered a relevantly similar litigation funding agreement from Pretium, in the context of proceedings where a creditor had sought an inquiry into the conduct of the liquidation by the Court. In that case, Markovic J held that litigation was unlikely absent the funding agreement, and the agreement mitigated the risks of litigation for the liquidator.

25 Counsel also referred to the principles set out in Re City Pacific Limited, as set out above, noting that in that case the funder was going to take 50% of the net proceeds. In that case, any delay in the finalisation of the liquidation was balanced by the prospect of recovery.

26 Counsel for the Liquidator also submitted that there was no objection from creditors to the Pretium Draft Agreement. The creditors, at the Creditors' Meeting, had not passed a resolution to approve the Liquidator entering into agreements longer than three months, however it was submitted that this was a general resolution and not specific to the Pretium Draft Agreement. After filing the originating process, no creditors have appeared to object to it, and the DCT Notice of Objection deals only with the Remuneration Application.

27 Counsel for the DCT submitted that the creditors had "knocked back" the funding agreement, and that the Court should not approve the Pretium Draft Agreement as there was not enough material before the Court to justify it.

28 Referring to the factors summarised in Leigh re King Bros, the DCT submitted that:

(a) The Court had no information about the Liquidator's prospects of success in the proposed legal proceedings;

(b) There was no information about how many examinations would be undertaken;

(c) There is no information about the likely costs of the legal proceedings;

(d) There was no evidence, apart from seeking generic approval at the Creditors' Meeting, of the Liquidator's consultations with creditors; and

(e) There was no evidence of the extent to which the Liquidator has canvassed other funding options, including with other funders so as to ascertain whether the funder's premium of 35% is appropriate.

29 The DCT submitted that the Funding Agreement Application was premature and the Court should not approve it.

30 Further, the DCT submitted that the agreement should not be approved as it would prolong the liquidation. Reference was made to a request from some creditors for a meeting to be convened so as to consider replacing the Liquidator with another liquidator. Counsel for the DCT sought to tender a document in this regard, which counsel for the Liquidator objected to on the basis that orders had been made for the filing of evidence and this was not consistent with it. I did not receive the document.

31 Neither party's submissions in respect of the attitude of creditors, or the consultations with creditors, in respect of the Funding Agreement Application is entirely accurate. The evidence is that the Liquidator sought written proposals from creditor(s) to fund legal proceedings, but none were forthcoming. In the August 2018 Report, the Liquidator mentions that the purpose of the proposed resolution under s 477(2B) was for litigation funding agreements. The minutes of the Creditors' Meeting record that the Liquidator stated, at that meeting, that if creditors did not pass resolutions for funding, the Liquidator's ability to commence legal actions would be hindered.[32]

32 Therefore, there is evidence that the Liquidator sought funding proposals from creditors and mentioned the possibility of third party litigation funding, but there is no evidence that this was canvassed in any detail at the Creditors' Meeting. There is also no evidence of consultation with creditors about the Pretium Draft Agreement.

33 While I did not receive the document referred to in paragraph 30 above into evidence or see a copy of it, in my view little turns on it. While prolonging the liquidation is an important factor in determining whether to grant approval pursuant to s&#[33]477(2B),33 in my view there is insufficient certainty as to whether the proposed replacement may occur and therefore I do not regard this as something to which much weight ought be given in the circumstances of this case, including the relevant termination provisions of the Pretium Draft Agreement.

34 I have had regard to the factors summarised in Leigh re King Bros, however I agree with the comments made by Brereton J in Re City Pacific Limited as to those factors being less important in this context. While I accept the DCT's submissions as to there being no information about prospects, either of the examinations or pursuing the Preference Claims, it seems to me that in a liquidation where the Liquidator has received little or no cooperation from the Company's director and where there are significant gaps in the books and records of the Company, it is likely that examinations will serve a useful purpose. In any event, examinations pursuant to ss 596A or 596B do not generally yield tangible outcomes on their own: they generally provide information which allows a liquidator to determine whether certain legal actions are worth pursuing.

35 The main consideration here is that the Liquidator has identified potential recoveries, the success of which is likely to be enhanced by undertaking examinations, which cannot be pursued without litigation funding. Without those recoveries, it is tolerably clear that there will be no return in the liquidation to unsecured creditors: the amount recovered already by the Liquidator is less than the amounts he claims in the Remuneration Application.

36 Importantly, I can identify no real detriment to creditors if the Funding Agreement Application is granted. The Liquidator retains control over any legal proceedings undertaken;[34] he is not liable for any legal costs unless there is a recovery achieved from the legal proceedings;[35] and he is not liable for any fees, disbursements or adverse costs.[36] True it is that the funder, Pretium, will receive 35% of the net amount recovered after legal costs, fees and disbursements are deducted. However, a funder's premium is a feature of third party litigation funding agreements, and the level of premium here does not appear excessive. This is particularly the case where, absent a funding agreement, creditors will likely receive nothing. As said by Brereton J in Re City Pacific Limited:[37]

Even if the funder receives more than 50 per cent of any judgment, 40 per cent of such if any judgment as might be obtained is a better result for the company's creditors than nothing. Because of the terms of the funding agreement, there is no downside for creditors in the prosecution of the litigation in question. There is no risk of the liquidators or creditors having to bear an adverse costs order, as it will be borne by the funder. In those circumstances, it does not take extensive reasoning or explanation to realise that there is benefit for the company in funding this litigation to an end.

37 The DCT did not identify any particular prejudice to creditors associated with the liquidation continuing so as to undertake the legal proceedings contemplated by the funding agreement. On the other hand, there is a potential benefit to it continuing for that purpose, as there is the potential for the Liquidator to achieve further recoveries and, possibly, some return to unsecured creditors from pursing the Litigious Matters. In short, the creditors may benefit from the Liquidator taking those steps, and there is no downside for the creditors in that occurring.

38 For these reasons, the Funding Agreement Application will be granted.

39 This application is made under s 473(3)(b) of the Act. That section provides:

(3) A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:

(a) if there is a committee of inspection - by agreement between the liquidator and the committee of inspection; or

(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:

(i) by resolution of the creditors; or

(ii) if no such resolution is passed - by the Court.

40 In exercising the power to determine the Liquidator's remuneration, s 473(10) of the Act prescribes the matters which the Court must take into account when exercising that power:

(10) In exercising its powers under subsection (3), (5) or (6), 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 liquidator was reasonably necessary;

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

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

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

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

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

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

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

(i) one or more receivers; or

(ii) one or more receivers and managers;

(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 liquidator in performing the work; and

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

41 While the criteria in s 473(10) of the Act direct the Court to the factors that are to be taken into account, the ultimate question is whether the remuneration claimed by the Liquidator is reasonable.

42 For completeness, I note that while s 473 of the Act as it was has been repealed, it continues to apply in certain circumstances. In this case, s 473 of the Act applies, rather than the new provisions contained in division 60 of the IPS.[38] The originating process as originally filed sought approval of the Liquidator's remuneration pursuant to s 60-10(1)(c) of the IPS, however after raising it with the Liquidator's counsel at the hearing, I gave leave to the Liquidator to file an amended originating process referring to the correct section.

43 The principles concerning applications for approval of the remuneration incurred by insolvency practitioners are well established and have been referred to in many decisions of this Court. Gardiner AsJ summarised the relevant principles in IMO Traditional Values Management Limited (in liq)[39] ('Traditional Values') at paragraphs [18] to [25].

44 For convenience I adopt his Honour's summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[40]

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.

At [63] and [64] of Thackray, her Honour stated:

.... the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers. The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work and justification of the hours spent. That amount can then be adjusted up or down to reflect other factors including:

(a) complexity above the norm for the kind of work involved;

(b) novelty and difficulty of the issues faced;

(c) the ultimate outcome obtained by the claimant.

The Court is looking for evidence of overcharging. Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided. But there is no universal approach applicable in all circumstances by which the "reasonableness" of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[41]

45 Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited.[42] In addition to the matters referred to above, his Honour stated the following propositions:

[T]he Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred[43].

Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the 'value' of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors.[44]

46 His Honour also canvassed a number of authorities regarding the method for calculating the remuneration, such as time costing or remuneration based on a percentage of realisations, concluding that:[45]

Most decisions ... have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the costs of the work done and the value of the services provided.

47 On this point, his Honour concluded by referring to the New South Wales Court of Appeal decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr[46] which he said did not prefer any particular approach over another. Black J then stated:

Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; and, in part, the view taken by the Court.[47]

Previous attempts to obtain approval from creditors for the Liquidator's remuneration

48 When sending the August 2018 Report to creditors, the Liquidator also provided notice of the Creditors' Meeting and the resolutions he would be seeking from that meeting. Those resolutions included approval of the Liquidator's fees for the First Period in the amount of $360,244.14 (excluding GST) and for the period of 7 August 2018 to completion capped in the amount of $150,000 (excluding GST), beyond which further approval must be sought from creditors or the Court.[48]

49 The August 2018 Report to creditors included a remuneration report dated 8 August 2018 ('Remuneration Report').[49] In the Remuneration Report, the Liquidator noted that the fees claimed differed from the estimated remuneration provided in his Initial Remuneration Notice dated 11 September 2017 and sent to creditors ('IRN'),[50] in which he had estimated his remuneration for the liquidation of the Company in the amount of $150,000. He stated that the differences were due to increased and unanticipated levels of investigations into voidable transaction claims and plant and equipment; non-compliance of the director resulting in additional time being spent pursuing completion of the RATA and provision of books and records and other information; additional liaison with ASIC to obtain assistance in obtaining books and records and a RATA; additional time spent pursuing recovery of unfair preferences which was not known when the initial estimate was provided; and dealing with debtor disputes and reviewing Company records to verify those disputes.[51]

50 The Remuneration Report contained a breakdown of the remuneration claimed based on six task areas: assets; creditors; employees; investigation; dividend; and administration ('Task Areas'). Each of those Task Areas then contained a number of sub-areas, which were in turn described in some detail. I will return to this.

51 The Liquidator received correspondence from the ATO dated 16 August 2018, seeking a copy of the Liquidator's 'work in progress' schedule for the First Period, so as to consider the proposed resolutions regarding the Liquidator's remuneration.[52] The following day, the Liquidator's office provided the ATO with a 'work in progress' schedule for the First Period as requested ('First Period WIP Schedule').[53]

52 On 21 August 2018 the Liquidator received correspondence from the ATO in which the ATO indicated it would be voting against the resolutions in respect of the remuneration claimed for the First Period on the basis that it was unreasonable. It was said to be excessive given the time period covered, the tasks performed and the level of complexity of the administration. It was also said that each level of staff spent an unreasonable amount of time without proper explanation, and it was claimed that senior members of the Liquidator's staff incurred 65% of the time costs.[54]

53 The following day, the Liquidator replied to this letter and stated that the remuneration claimed was not unreasonable and set out detailed reasons why that was the case. These reasons were said to be:[55]

(a) at the time the liquidation commenced, the Company had creditors in the sum of approximately $20m and there were approximately 300 creditors, many of whom have made enquiries concerning the liquidation requiring numerous responses;

(b) several significant and complex litigations were on foot at the time of the Liquidator's appointment which required detailed analysis as to their commercial viability;

(c) dealing with Mr Spits, his advisors and other third parties in obtaining the Company's books and records, which also included issuing notices pursuant to s 530B of the Act;

(d) significant time spent in attempting to obtain information under a Freedom of Information request to the ATO;

(e) ongoing meetings with Mr Spits and his advisors in an attempt to obtain sufficient information to assist with the Liquidator's investigations of the Company;

(f) liaising with ASIC in relation to Mr Spits' failure to produce the Company's books and records;

(g) reviewing and dealing with the ATO's notice of amended assessment in respect to business activity statements lodged by the Company prior to the Liquidator's appointment;

(h) dealing with the Company's claim in the liquidation of SFOPPS;

(i) dealing with potential debtors of the Company, reviewing contracts and agreements to identify/verify offsetting claims, and liaising with various secured creditors regarding their relevant assets that had been taken in lieu of payment and attending sites to identify assets;

(j) dealing with the ATO Notices;

(k) undertaking detailed investigations into the affairs of the Company, including reconstructing the financial position of the Company, conducting a detailed analysis of the Company's financial position during the relation back period and identifying potential preference payments;

(l) perusing and pursuing the ATO Preference Payment;

(m) reviewing relevant formal proofs of debt received and determining whether they were creditors of the Company and/or SFOPPS;

(n) preparing the statutory report to ASIC, together with a subsequent request for funding from the Assetless Administration Fund for the purpose of examining Mr Spits and associated parties; and

(o) preparing reports to creditors.

54 The resolutions in respect of the Liquidator's remuneration were not passed at the Creditors' Meeting.[56]

Work performed by the Liquidator and his staff

55 Descriptions of the work performed by the Liquidator and his staff are set out in the body of the First Affidavit, much of which has been described in paragraphs 8 and 53 above, along with the detailed descriptions under each Task Area contained in the Remuneration Report. Further, the F[57]st Period WIP Schedule57 and a similar schedule for the Second Period ('Second Per[58]d WIP Schedule')58 set out a narration for each item of work undertaken. There is no need for me to repeat in this section what I have already set out above in relation to a description of the work performed.

56 In relation to the First Period, a summary of the Task Areas and a general description, along with the number of hours and amount of remuneration as contained in the Remuneration Report, is set out below. I have not included the detailed descriptions which are also to be found in the Remuneration Report.

57 The Remuneration Report contains an estimate for the period from 7 August 2018 to the conclusion of the liquidation, based on an estimate of $150,000 as set out in paragraph 48 above, broken down into the Task Areas. Given that this was an estimate, and that the Remuneration Application seeks approval for a fixed amount for the Second Period which is not co-extensive with what was contained in the Remuneration Report, there is little utility in setting that out here.

The Liquidator's rates and method for calculating remuneration

58 In the IRN, the Liquidator explained that he would be calculating his remuneration on a time based/hourly rates method, as his view was that:[59]

(a) This method ensures that creditors are only charged fees for work that is actually performed by the Liquidator and his staff;

(b) Fees would be calculated on the basis of time spent at a level appropriate to the work performed;

(c) There are a number of tasks he is required to perform that do not relate to the realisation of assets, such as responding to creditor enquiries, reporting to ASIC, and distributing funds;

(d) The percentage of assets method is not appropriate as he may not be fully aware of all the assets of the Company, so that fees stated on that basis may be overstated or understated; and

(e) The fixed fee method and contingency method are not appropriate as he is not fully aware of all the work necessary to bring the liquidation to a conclusion, so that fees stated on either of those bases may be overstated or understated.

59 As part of the IRN, the Liquidator provided the then current schedule of remuneration and disbursements for Jirsch Sutherland, which also set out the qualifications and experience of staff at each of the levels set out in that schedule as at 1 August 2017 ('2017 Stated Rates').[60]

60 In the First Affidavit, the Liquidator refers to the First Period WIP Schedule and to what he describes as a true copy of the Jirsch Sutherland remuneration rates, which is exhibited. Upon reviewing that exhibit, the Jirsch Sutherland rates have a heading 'remuneration rates effective 1 August 2018' ('2018 Stated Rates'). The Remuneration Report also contained a copy of the 2018 Stated Rates and stated that future disbursements would be calculated in accordance with the disbursement rates contained in the 2018 Stated Rates.

61 Set out below is a table showing the grade of employee and the hourly rate, drawn from each of the 2017 Stated Rates and the 2018 Stated Rates.

62 Upon reviewing the First Period WIP Schedule, it is apparent that all of the remuneration claimed for the First Period has been calculated by reference to the 2018 Stated Rates.

63 There is no explanation offered by the Liquidator regarding this aspect of the claim. I have reviewed the 2017 Stated Rates and the 2018 Stated Rates, and the only rate which is the same is for that of 'partner'. Every other rate has increased: from my rough calculations, while the percentage of the increase for each rate varies, the average increase is around 4.5%.

64 The First Period WIP Schedule and the Second Period WIP Schedule (together, 'WIP Schedules') are spreadsheets which set out information, including the following, in respect of each item of work performed: date; name of employee; grade of employee; hours; WIP amount; Task Area; and narrative.

65 The Liquidator deposes that he has reviewed each of the time entries contained in the WIP Schedules and considers that:[61]

(a) the narrative for each item adequately describes the work that was done;

(b) it was necessary to do the work that was done by each person;

(c) each item of work was done by a person who was suitably qualified to do that work; and

(d) the time taken for each item of work that was done was reasonable in the circumstances of the Company.

66 The DCT Notice of Objection states 5 grounds upon which the DCT objects to the Remuneration Application. Those grounds, and a brief description, are set out below:

(a) Remuneration has been claimed by the Liquidator for work done by his staff at inappropriate levels ('Ground 1');

(b) Insufficient particulars have been provided for the work done by the Liquidator and his staff in respect of work for which he claims remuneration ('Ground 2');

(c) The amount of time spent on work done by the Liquidator and his staff in respect of which he claims remuneration is excessive ('Ground 3');

(d) The remuneration sought to be recovered by the Liquidator is in respect of work done which was likely not necessary ('Ground 4'); and

(e) The remuneration sought to be recovered by the Liquidator is not proportional to the benefit to the creditors of the Company ('Ground 5').

67 In respect of Grounds 1 to 4, the DCT has provided examples of particular entries in the WIP Schedules which he says fall within the relevant grounds. Copies of the WIP Schedules are attached to the DCT Notice of Objection and each item which is challenged by the DCT is annotated with a number corresponding to the ground for objection.

68 In addition, the DCT Notice of Objection in respect of Ground 4 states that it is not possible to determine whether the work performed was reasonably necessary until such time as proper itemisation and particularisation of the attendance for which remuneration is sought is provided by the Liquidator.

69 Of Ground 5, the DCT Notice of Objection states as follows:

(a) The total amount of remuneration claimed is $461,119.22 (excluding GST);

(b) In the August 2018 Report, the Liquidator states in his summary of receipts and payments that $252,969.87 has been receipted by the Liquidator, of which $250,969.87 remains available after the payment of expenses;

(c) If the remuneration is approved in the amount claimed, it is likely that the whole of the amounts recovered in liquidation of the Company will be consumed by the Liquidator's remuneration;

(d) Even if there were further recoveries, the Liquidator opines that further work will be required and that he expects a further 12 months would be required before he was in a position to finalise the liquidation;

(e) Having regard to the fact that:

(i) The Company ceased trading prior to the Liquidator's appointment;

(ii) The Liquidator did not take custody or sell any assets of the Company;

(iii) The Liquidator was not required to accept a high level of risk or responsibility in the liquidation;

(iv) The Liquidator did not continue or defend any litigation in respect of which the Company was party prior to his appointment,

a claim for remuneration that would almost certainly result in there being no return to creditors is disproportionate to the value of the work performed by the Liquidator and not reasonable in all of the circumstances.

70 Counsel for the Liquidator submitted that this liquidation was large and complex, and that the work performed by the Liquidator was reasonably necessary.

71 Addressing each of the factors set out in s 473(10), the Liquidator submitted as follows:

(a) Extent to which the work performed was reasonably necessary

A review of the narrative of the work performed, as set out in the WIP Schedules, the First Affidavit and the reports to creditors, reveals that the tasks undertaken were what one would expect in this type of external administration given the complexities of the Company's affairs.

(b) The period during which the work was performed

The work performed was for a period of 13.5 months.

(c) The quality of the work performed

No complaint has been made about the quality of the work. The work performed was appropriate and of a quality expected of the Liquidator.

(d) Complexity (or otherwise) of the work performed

The Liquidator was required to deal with numerous complex issues, including several legal proceedings and complaints about the Company's defective work. The Company's affairs were complicated in light of the relationships between the Company and its related entities, the results of the GST audit conducted by the ATO, the failure of Mr Spits to provide the Liquidator with the Company's books and records, and the inaccurate RATA provided by Mr Spits.

(e) Extent (if any) to which the Liquidator was required to deal with extraordinary issues

The Liquidator was required to respond to numerous legal proceedings filed for or against the Company, which I have already referred to in paragraph 8(c) above.

Counsel for the Liquidator accepted my proposition that the Statutory Demand Proceedings would not have required a great deal of work as presumably these were all discontinued. However, he submitted that it was necessary for the Liquidator to review these proceedings so as to ascertain whether the persons who had served the statutory demands were creditors.

One of the proceedings which was on foot at the time of the Liquidator's appointment was an application made by the Company for an interlocutory injunction against Cidec Pty Ltd, who I understand was a creditor of the Company.[62] I do not have any evidence as to what this proceeding was about, but it was submitted that the Liquidator had to spend time on it in order to understand what was happening in that proceeding.

Further, there was a separate proceeding on foot at the time of the Liquidator's appointment which was described as a debt recovery action brought by Cidec Pty Ltd. There was no evidence before me as to the detail of this and what happened with the proceeding after the Liquidator was appointed: for example, I do not know whether leave was granted to Cidec Pty Ltd to continue with that action, although I expect if the action had continued this would have been referred to in the Liquidator's affidavits.

(f) Extent (if any) to which the Liquidator was required to accept a higher level of risk or responsibility than is usually the case

The Liquidator was required to accept a higher level of risk or responsibility than is usually the case, due to the numerous legal proceedings the Company was involved in, especially the criminal proceeding. In addition, the Liquidator was required to spend a considerable amount of time examining the Company's affairs, for which he was unfunded.

(g) Value and nature of any property dealt with by the Liquidator

Counsel for the Liquidator referred to the assets of the Company, some of which I have briefly summarised in paragraph 8(f) above. In addition to those assets, the Liquidator identified a number of other assets or issues with assets, as summarised below.

(i) The only unencumbered assets of the Company which the Liquidator identified were two caravans registered in the Company's name. The Liquidator requested delivery of those caravans, however Mr Spits indicated he was unaware of them or their location, and the Liquidator has been unable to locate them.[63]

(ii) The Liquidator's investigations indicate that prior to his appointment, three shipping containers were delivered to the Company's former principal place of business and all assets located at those premises were placed into the containers, following which they were removed to an unknown location. The Liquidator has not been able to locate these assets.[64]

(iii) The Liquidator investigated whether any of the Company's assets were located at the site of a building project it had worked on, before the contract for that project had been terminated. The Company had removed all of its assets located at that site prior to termination of the contract and the Liquidator has been unable to locate them.[65]

(iv) An insurance claim had been made by the Company regarding a burnt out crane it had owned, which the insurer informed the Liquidator it had rejected as it was voiding the policy as a result of non-disclosure of certain matters. The Liquidator was required to review available information to determine if any action against the insurer could be taken, and also corresponded with the insurer as to the refund of premiums for the voided policies. In addition, the Liquidator investigated the cause of damage to the crane and inspected it at the repair yard to determine if it had any commercial value, which in his view it did not.[66]

(v) A number of third parties advised the Liquidator that the Company was in possession of their assets, which the Liquidator has been unable to locate.[67]

(vi) The Liquidator has corresponded with potential trade debtors to determine the value (if any) of any amounts owed to the Company. These debtors have all advised that they hold offsetting claims against the amounts shown in the Company's books and records or have entered into some form of formal administration. No amount is believed to be recoverable in regard of this asset class.[68]

(vii) The Liquidator has corresponded with Mr Spits regarding repayment of his outstanding director's loan account. The Liquidator has not yet received a response from him. The Liquidator's investigations to date indicate that Mr Spits has insufficient assets to meet any demand for repayment.[69]

(h) Number, attributes and conduct of the creditors

Mr Spits' RATA did not identify the details of claims by unsecured creditors.

As already noted, to date the Liquidator has identified 294 creditors who are owed a total of $19,678,261.89.

(i) Whether the liquidator was required to deal with one or more receivers, or one or more receivers and managers

The Liquidator was required to deal with the liquidators of SFOPPS, a related company. SFOPPS appears to have conducted its business from the principal place of business of the Company utilising the Company's assets and employees.[70] The liquidators initially appointed to SFOPPS in December 2016 were replaced on 10 August 2017 by Ross Blakeley and Paul Allen of FTI Consulting. The Liquidator has liaised with SFOPPS' liquidators for the purpose of sharing information about investigations conducted, to assist them to identify potential assets of SFOPPS which may be recovered for the benefit of its creditors (including the Company), and to monitor the conduct of the SFOPPS liquidation.

(j) If the remuneration is calculated on a time basis, the time properly taken in performing the work, whether the total remuneration is capped, any other relevant matters

The materials set out the work performed and the time taken to perform it. Many of the tasks were complex and it was not appropriate for it to be performed by more junior level staff.

(k) Other - failure to produce books and records

The Liquidator and his staff were required to spend a significant amount of time locating the books and records of the Company and was required to issue several notices to produce them pursuant to s 530B of the Act. Mr Spits failed to comply with those notices and the Liquidator sought ASIC's assistance in that regard. ASIC issued legal proceedings in the Magistrates' Court against Mr Spits, as a result of which he was fined $4,000 and ordered to pay Court costs. He still did not produce the books and records and said that they were held by third parties.[71]

The Liquidator has received three boxes of books and records from Mr Corey Gale, on behalf of Mr Spits. He has also received a significant volume of records from the liquidator of the Company's previous solicitors, from the ATO including bank statements and MYOB data that the Company had provided to the ATO as part of its business activity statement audit, and various documents from creditors.

(l) Other - reconstruction of books and records, and voidable transaction claims

Due to the limited availability of the Company's books and records, the Liquidator and his staff spent considerable time reconstructing and verifying the Company's financial position, so as to assist in determining the date of insolvency and identify potential voidable transactions. This led to the recovery of the ATO Preference Payment and the identification of the Preference Claims.

72 It was submitted that the Liquidator's response on 22 August 2018 to the initial objections to his remuneration expressed by the ATO, as set out in paragraph 53 above, identifies why the work performed was necessary and why it was complex to undertake.

73 Further, the Liquidator submitted that the DCT had filed the Notice of Objection but no affidavit, so that any allegations made in the Notice of Objection or the DCT's submissions are merely opinion for which no factual material has been adduced, and so there is nothing to substantiate the DCT's objection. Counsel for the Liquidator submitted that orders had been made on 14 December 2018 for the DCT to file an affidavit, but he had chosen not to.

74 In my view, this submission misconceives the orders made on 14 December 2018. I have already summarised them in paragraph 13 above, and it is clear from these orders that it was a matter for the Liquidator to file any further affidavit material in reply to the DCT Notice of Objection, which he did not do.

75 I consider that the DCT Notice of Objection is more in the realm of submission or explaining what the DCT objects to and why, and this is how I will treat it.

76 As just mentioned, I regard the DCT Notice of Objection as a submission and I do not propose to repeat it here. I have summarised it above. Rather, I will summarise here any additional points raised in the oral submissions made on behalf of the DCT.

77 The DCT submits that the onus is on the Liquidator to establish the reasonableness of his remuneration claim and that it is difficult for the DCT to assess this where there is insufficient information.

78 The DCT contends that the liquidation of the Company has not been complex, for the following reasons:

(a) The Company had ceased trading prior to the Liquidator's appointment;

(b) Four of the legal proceedings were to set aside statutory demands issued to the Company which upon its liquidation were not complex to deal with, the debt recovery action was stayed, and there were no details provided in respect of the interlocutory injunction application; and

(c) There were no assets to sell or otherwise deal with.

79 Further, the DCT submits that in the IRN the Liquidator estimated costs of $150,000 for the liquidation and the Liquidator has not adequately explained the vast difference from this to the remuneration claimed. The DCT referred to the Liquidator's report to creditors dated 15 November 2017, where it was stated that the Liquidator's fees to then were $144,158.50.[72] That report then stated that 'a claim may be made for further remuneration in the future.' The DCT submitted that creditors were not told that a claim will be made for further remuneration or been given an indication of what the quantum of any future remuneration is likely to be. The next the creditors were told, according to the DCT, was in August 2018 with the August 2018 Report, where the remuneration was said to be some $360,244.14 to 6 August 2018 plus an estimate of $150,000 from that date.

80 As for the DCT's submissions in relation to Grounds 1 to 5 as set out in the DCT Notice of Objection, it is more convenient to deal with the submissions of both the DCT and the Liquidator when I set out my views in respect of them.

81 To assist the Court, the Liquidator's counsel provided a document which contained tables for each of Grounds 1 to 4. These tables set out the items under each Ground which were objected to in the WIP Schedules, and then colour-coded the entries in copies of the WIP Schedules to show where those items appeared ('DCT Aide Memoire'). Apart from the table for Ground 1, those tables are simply grouped extracts from the WIP Schedules.

82 For Ground 1, the table sets out the hourly rate which the DCT says should have applied to the items claimed. There was no evidence before me as to where those rates came from, who had formed that view, or what the basis for that view was. For the reasons set out above, I will treat this as a submission.

83 Further, the DCT did not address specific disputed items during the course of oral submissions. Apart from the examples noted for each Ground in the DCT Notice of Objection and those listed in its attachments, no specific submissions were made as to what should be allowed by the Court or what should have been done by the Liquidator in respect of Grounds 2, 3 and 4, other than those noted below.

84 Based on all of the evidence provided, I am satisfied that the Liquidator has made out a prima facie case for payment of his remuneration, within the meaning referred to in paragraph 44 above. That is, the Liquidator has made out a prima facie case that the remuneration claimed is fair and reasonable, and there is sufficient information to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken.

85 From my experience in matters associated with insolvency administrations, I know the hourly rates specified by the Liquidator, whether they be the 2017 Stated Rates or the 2018 Stated Rates, to be commensurate with the hourly rates typically charged by insolvency practitioners.

86 The DCT Notice of Objection did not object to the schedule of hourly rates claimed by the Liquidator. The only complaint connected with the hourly rates was in terms of Ground 1, which is not the same thing.

87 The issue with the schedule of hourly rates which I have set out in paragraphs 59 to 63 above was not addressed in the materials or in submissions. I did not identify this issue until after the conclusion of the hearing.

88 In my view, a common-sense reading of the materials is that work performed up to and including 31 July 2018 ought to have been calculated at the 2017 Stated Rates, and work performed after that date at the 2018 Stated Rates. This is because the two schedules referred to the rates set out therein as 'effective 1 August 2017' and 'effective 1 August 2018'. The obvious interpretation is that this is when the rates changed. In the absence of any other explanation, that is the approach which I consider ought be taken.

89 Further, it is clear from the IRN that the Liquidator intended to calculate his remuneration on the time based method using the 2017 Stated Rates.

90 As far as I can ascertain, there was no mention in the IRN of the rates changing over time, and so the first instance of increased rates being notified to creditors based on the materials before me is with the Remuneration Report.

91 In my view, therefore, remuneration for the First Period ought to have been calculated by reference to the 2017 Stated Rates, and the remuneration for the Second Period ought to have been calculated by reference to the 2018 Stated Rates.

92 It is impracticable and beyond the task which the Court should be expected to undertake for me to reduce each item in the First WIP Schedule. As noted above, the only rate not to have changed is the partner rate. Of the $360,244.14 claimed in remuneration for the First Period, $127,494.58 of this was incurred at the partner rate. That is approximately 35% of the total. As already noted, the average rate increase was 4.5%.

93 As a result of this, I will reduce 65% of the remuneration approved for the First Period, as arrived at below, by 4.5%.

Some general comments regarding the amount of remuneration to be approved and the approach I have taken

94 The Liquidator's tasks in this liquidation have been rendered far more complex and time-consuming than they would have been, had the director been co-operative and the books and records complete and readily available. It was necessary for the Liquidator to take the steps he did to investigate the Company's affairs, including all the steps taken to obtain the books and records.

95 Similarly, it was necessary for the Liquidator to identify the Company's assets and attempt to recover them and realise them for the benefit of creditors. That this did not lead to a positive outcome for creditors, as assets were not located or able to be realised, did not mean that the work did not need to be done. The situation was made more time-consuming and complex by several of the encumbered assets being seized by creditors in what I assume was a form of self-help, along with the director's failure to assist the Liquidator with these matters. Similar comments can be made about the removal of office equipment and other plant and equipment from the Company's principal place of business and a previous building site.

96 Generally speaking, I accept the Liquidator's submissions regarding the s 473(10) factors as set out in paragraph 71 above, save that:

(a) I do not regard the Statutory Demand Proceedings or the debt recovery proceeding brought by Cidec Pty Ltd as adding a great deal to the complexity of the liquidation or to the level of risk or responsibility required of the Liquidator, in circumstances where it appears that these proceedings did not progress much after the appointment of the Liquidator. Whether this has any impact on the claimed remuneration, however, depends on the extent to which fees have been claimed in respect of those items. If an adjustment needs to be made, then it is referred to below when reviewing the individual grounds;

(b) The issue of whether the work was performed at the correct level of employee will be considered below.

97 In my view, the DCT's submissions based on the difference between the initial estimate given to creditors and the remuneration now claimed do not affect the question of whether the remuneration claimed is reasonable. The Liquidator has adequately explained to creditors what the reasons were, as I have set out in paragraph 49 above. Further, when referring to the Liquidator's report to creditors dated 15 November 2017 (see paragraph 79 above), the DCT did not mention the section of that report which set out key tasks required to complete the liquidation, which included realisation of assets (if equity available), recovery of unfair preference claims, investigate and pursue potential claims (including voidable transactions and insolvent trading), ongoing administrative matters and statutory compliance, declaration and payment of dividends, reporting to ASIC pursuant to s 533(2) of the Act (if applicable), obtaining clearance from ASIC to finalise the winding up, attending to all statutory reporting and filing obligations, and finalising the wi[73]ing up of the Company.73 It ought to have been readily apparent to creditors from reading that section that this could result in substantial additional remuneration.

98 As mentioned in paragraph 74 above, the orders made on 14 December 2018 provided for the Liquidator to file affidavit material in response to the DCT Notice of Objection. He did not do so. There is therefore no evidence before me that specifically responds to the complaints made in the DCT Notice of Objection in terms of the particular items in the WIP Schedules complained of. While some oral submissions were directed to this, there are aspects of considering the specifically objected to items where I would have been assisted by the Liquidator providing specific evidence in response. These are noted below.

99 In the ATO letter dated 21 August 2018 to the Liquidator, one of the matters complained of was that senior members of the Liquidator's staff had incurred 65% of the time costs.

100 Notwithstanding this complaint, no submission was developed before me in relation to it. Ground 1 is far more confined: in the DCT Notice of Objection it is simply said that some work was done by a staff member at an inappropriate level where it ought to have been delegated to a more junior level employee, and it is stated that the remuneration objected to on that Ground is annotated as Ground 1 on the WIP Schedules.

101 Considered at a general and abstract level, and in light of numerous other remuneration applications I have determined, 65% of the time costs being incurred at a senior level (ie Partner, Principal and Senior Manager) seems "top heavy" to me. However, it is too simplistic to consider it at that general and abstract level, and that is not the complaint ultimately pressed by the DCT.

102 Whether the work was performed at too senior a level must be considered in light of the evidence provided: both the affidavit material (including the Remuneration Reports) and the WIP Schedules. That is what the DCT's table for Ground 1 does, as the DCT Aide Memoire lists the 14 items complained of with specificity.

103 I have reviewed each of those items and I agree with the DCT that these tasks should all have been performed by a more junior employee than the person who performed the work, and I agree with the rate at which the DCT submits that this work should have been charged. In relation to the First Period, this would be a reduction in three items from a total of $3,094.50 to $1,729. In relation to the Second Period, this would be a reduction in 11 items from a total of $3,501.50 to $1,047.50.

104 The DCT complains that insufficient particulars have been provided for the work done by the Liquidator and his staff, and specifies some 144 items in respect of the First Period and some 38 items in respect of the Second Period which he says fall within Ground 2.

105 The Liquidator says that it is not sufficient just to look at the narrations contained in the WIP Schedules: all of the material which describes the work done by the Liquidator and his staff needs to be taken into account.

106 I agree with this submission: for the most part it is not difficult to review the narrations with the other materials in mind and be able to work out what they refer to.

107 Below, I set out those items identified in the DCT Aide Memoire for Ground 2 where I agree that there needs to be some adjustment made, either on the basis of Ground 2 or some other ground. For example, there are some instances where I consider there to be sufficient particulars but where I consider the number or level of people working on it, or the time spent, to have been excessive.

108 For 22 November 2017, there is an entry for the Liquidator for 3.30 hours at a cost of $2,128.50 along with an entry for Mr Bellamy (principal level) for 3 hours at a cost of $1,770 for attending the crane repairer at Campbellfield to inspect the damaged crane. Sufficient particulars for the these two items are provided but sending the two most senior people to inspect a damaged crane is excessive. I would allow only one of these, so will allow the entry made by the Liquidator.

109 There are a number of entries relating to "Alpha 59", "Alpha 54", "Alpha", "Alpha 112", some of which also refer to a claim or build contract or a DOCA. Apart from one or two Alpha references in the schedule of creditors, with a $0 claim next to them, I have no information what these are about and I cannot ascertain it from the materials before me. On my calculation, there is 13.9 hours at a cost of $8,882.50 claimed in this regard. Since I do not know what this work is for, it is impossible for me to assess its reasonableness and I will not make any allowance for these items in the remuneration to be approved.

110 There are two items "review of Cidec case docs" for the Liquidator with 6.1 hours at a cost of $3,988.04. Other than Cidec being listed as a party in two of the proceedings to which the Company was a party, one being an injunction application and the other being a debt recovery action, and the submission that the Liquidator needed to understand what was happening with these cases, it has not been explained to me why such a time-consuming review of documents in the case needed to be conducted by the Liquidator personally. I would therefore reduce this to $1,290, being the equivalent of 2 hours of the Liquidator's time.

111 The DCT objection on this ground is that the amount of time spent on particular work is excessive. Based on the DCT Aide Memoire, there are 6 areas of work which are complained of for the First Period, and 2 areas of work complained of for the Second Period. The calculations below have been made by me, as apart from listing each narration, there were no calculations contained in the DCT Aide Memoire.

112 The first area for the First Period is 4.4 hours work at a cost of $1,991.50 in respect of initial work regarding secured creditors. The amount of time spent on this does not seem unreasonable to me and I will not make any adjustment for that, however the work was all done at a senior level and from the narrations I do not consider that to be appropriate. I do not see why someone at Manager 2 level would have been required to prepare a schedule of secured creditors and prepare letters to secured creditors at the start of the liquidation, as these are highly likely to have been form letters. I would therefore calculate 3.9 hours at $390 per hour rather than $505 per hour, which would reduce the total amount from this item from $1,991.50 to $1,816.

113 The second area for the First Period is 7.9 hours work at a cost of $2,365 for work done in responding to an ATO request regarding proofs of debt. This does not seem to be an unreasonable amount of time to me for this task, given that there were well over 200 creditors, and the work has been performed by more junior staff. I will not make any adjustment in respect of this item.

114 The third area for the First Period is 34.5 hours work at a cost of $18,529 for preparation of the report to creditors dated 15 November 2017. This area of work has all been performed by persons at Manager 2 level or above. While I accept that this report is a detailed report and requires significant senior input, I would have thought that aspects of it are relatively straightforward and formulaic, which is apparent from reading the report (which I have done). Therefore, I would reduce this item to $13,529.

115 The fourth area for the First Period is 19.2 hours work at a cost of $5,381.50 for work done in respect of disclaimers and secured assets (from the descriptions, this is clearly a different area to that referred to in paragraph 112 above). From my review of the First Period WIP Schedule, the items listed in the DCT Aide Memoire are not the only items referable to this area of work from around the time of the entries complained of. Without more information about what this area of work contained, it does seem an excessive amount has been charged for this, and so some adjustment should be made for the amount of time spent. However, the vast bulk of this work has been performed at a very junior level, so no adjustment needs to be made in that regard. I would reduce this to $3,381.50.

116 The fifth area for the First Period is 11.9 hours work at a cost of $5,493 for preparation of the August 2018 Report. I do not consider this to be an unreasonable amount for this area of work.

117 The sixth area for the First Period is 10.5 hours work at a cost of $6,275.50 for work done in connection with the preference claim against the ATO. Reviewing the First Period WIP Schedule, there is more work recorded for this area than is listed on the table in the DCT Aide Memoire. From that, there appears to be an additional 16 hours of work at a cost of $7,252 attributable to this area of work. On my calculation, this is therefore 26.5 hours of work at a cost of $13,527.50. Again, in the absence of a specific response from the Liquidator to this complaint, it is difficult for me to assess. It is also unclear how to view the DCT's complaint when he hasn't explained what it is that he says should happen with this area of work. Does the DCT want all the items in the table disallowed, or reduced? Some of the additional items I identified seem to be include preparation of a solvency analysis, which would potentially be of broader application, and would also be a time consuming exercise. Doing the best that I can in all of these circumstances, I consider that the work appears to have been performed at an appropriate mix of levels, but it does seem to be an excessive amount of time to have spent on the whole of this area of work. I will therefore reduce this entire item to $10,527.50.

118 The first area for the Second Period is 7.6 hours work at a cost of $3,838 for the minutes of the Creditors' Meeting. As with the previous area referred to, there are other items in the Second Period WIP Schedule referrable to this area at around the same time. There appears to be an additional 3.5 hours of work at a cost of $2,154.50. On my calculation, this is a total of 11.1 hours at a cost of $5,992.50. Similar difficulties arise with analysing this as with the previous area. Doing the best that I can in these circumstances, I consider that the work appears to have been performed at an appropriate mix of levels, but it does seem to be an excessive amount of time to have spent on it. I will therefore reduce this entire item to $3,992.50.

119 The second area for the Second Period is 2 hours work at a cost of $1,290 in respect of the preference claim against Boral. This does not seem to be an excessive amount of time or cost and I will not make any adjustment in respect of this area.

120 The items complained of which fall within Ground 4 all relate to fees incurred in preparing the First Affidavit. The DCT Notice of Objection states that the items complained of relate to work which was not reasonably necessary to perform. It also states that it is not possible to determine whether the work performed was reasonably necessary until proper itemisation and particularisation of the attendance for which remuneration is sought. In oral submissions, the DCT also complained that there had been no engagement with the substantive complaints made by the DCT in respect of the remuneration claimed and that the Liquidator had chosen to come to Court instead of engaging in dialogue with creditors.

121 The Liquidator says that it was necessary to apply to the Court for approval of his remuneration and that the authorities are clear that the fees incurred in doing so are able to be claimed.[74]

122 I do not accept the DCT's submissions relating to Ground 4. At the time of preparing the First Affidavit, the creditors had already rejected the resolution to approve the Liquidator's remuneration, so that it was necessary for the Liquidator to make an application to the Court. There had also been a substantive letter on 22 August 2018 from the Liquidator to the ATO regarding the complaints the ATO had made about the remuneration claimed, and so I do not accept the submission in that regard either. During the course of discussion with Counsel at the hearing, Counsel for the Liquidator indicated that if the submission regarding these items was not accepted as falling within Ground 4, then the items were still objected to on the basis of Ground 3.[75]

123 Considering it from the perspective of Ground 3, the remuneration claimed for the preparation of the First Affidavit is 16.9 hours work by Liam Bellamy, a principal within the Liquidator's office with an hourly rate of $590, for a total amount of $9,971. I have reviewed the Second Period WIP Schedule and there does not appear to be time recorded by others within the Liquidator's office for this item of work. It is clear from Mr Bellamy's first narration for this item that an affidavit had already been drafted, as it refers to reviewing draft affidavit and commencing amending it. There is no evidence about who prepared the first draft and what state that was in. Nonetheless, the First Affidavit is a lengthy and detailed document, and it would have taken some time to prepare and I do not consider the amount of time claimed to be unreasonable. It is also not surprising that it required substantial input at a senior level. It seems to me, however, that some of it could have been done at a more junior level, say Senior 1 level at $390 per hour. Splitting the time roughly equally, this gives an amount of $8,291 for this area of work.

124 In relation to Ground 5, the DCT relies on the principles set out in Thackray and Sakr regarding proportionality.[76] The DCT also referred to Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2)[77] for the general principles, particularly in relation to proportionality. In that regard, counsel particularly relied on a passage in Cedenco that noted that the factors in s 473(10) have the concept of proportionality as their 'unifying theme'. It was said in Cedenco that:[78]

an important consideration in determining overall reasonableness is proportionality between the work done compared with the size of the property or activity which is the subject of the insolvency administration, or the benefit or gain to be obtained from the work. Another way of expressing this point is to say that proportionality involves a consideration of the value of the services rendered.

125 The DCT submitted that the remuneration claimed is disproportionate to the value of the work performed by the Liquidator, as at this point of time there will be no return to creditors and therefore the remuneration claimed is not reasonable, as set out in paragraph 69 above.

126 The Liquidator submitted that proportionality has to be considered in light of the stage of the winding up when the Remuneration Application is made. The Liquidator has spent an appropriate amount of time investigating the affairs of the Company, including the possibility of further recoveries.

127 In my view, the task before me is not as simple as comparing the costs of the liquidation with the amount recovered for creditors. That is not what proportionality means. The services performed may have value, even if they do not ultimately result in a significant return to creditors. In this regard, two points made in Sanderson need to be borne in mind: a liquidator is entitled to be remunerated for work required to be carried out even though it will not augment funds available to creditors (for example, the need to comply with statutory obligations); and a liquidator who acts reasonably in pursuing recoveries is entitled to be remunerated for his or her work in connection with that, even though the liquidator may ultimately fail in making any recoveries.[79] Investigating the affairs of the Company, including to ascertain whether there are recoveries worth pursuing, fits within that.

128 Rather, the broad scope of the work performed needs to be looked at and then assessed to see whether it was necessary for it to be performed and whether the amount charged for it is reasonable. Proportionality is one aspect of that.

129 Given that the liquidation is ongoing and that the public examinations are yet to be conducted or the Preference Claims pursued, it is simply not possible to say what the likely return to creditors may be. In light of the Liquidator's quantification of the Preference Claims, recovery of that amount or part of it is likely to alter, perhaps significantly, the return to creditors. In my view, therefore, it is not appropriate to assess the reasonableness of the remuneration claimed on the basis of the Liquidator's recoveries thus far.

130 In light of these adjustments, from the $360,244.15 claimed for the First Period, the following should be deducted:

(a) $1,365.50;[80]

(b) $1,770;[81]

(c) $8,882.50;[82]

(d) $2,698.04;[83]

(e) $175.50;[84]

(f) $5,000;[85]

(g) $2,000;[86] and

(h) $3,000.[87]

131 This leads to an adjusted amount of $335,352.61 for the First Period.

132 Further adjustments need to be made to that adjusted amount for the First Period, due to the matters referred to in paragraphs 92 and 93 above. This leads to an amount of $325,543.[88] for the First Period.88

133 In light of these adjustments, from the $100,875.08 claimed for the Second Period, the following should be deducted:

(a) $2,454; [89]

(b) $2,000;[90] and

(c) $1,680.[91]

134 This leads to an adjusted amount of $94,741.08 for the Second Period.

135 I have also considered the Second Period WIP Schedule in light of the fact that it is for a period of about 8 weeks with over $100,000 claimed in remuneration. I am satisfied that adjustments beyond those already specified are not needed for the Second Period, as it is clear from those narrations what work was done in that period and the whole of the materials before me explain the reason for that work being performed.

136 Accordingly, there will be orders made as follows:

(a) Approving the Funding Agreement Application;

(b) Approving the Liquidator's remuneration:

(i) for the First Period in the amount of $325,543.61 (excluding GST); and

(ii) for the Second Period in the amount of $94,741.08 (excluding GST).

137 I will hear from the parties as to the appropriate form of orders and as to costs.

[1] By order made on the Court's own motion, the originating process has been referred to me for hearing and determination, pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015.

[2] For completeness, I note that the First Affidavit has not been separately filed: the First Affidavit, along with all of its exhibits, constitutes part of Exhibit GAC-1 to the Second Affidavit. Nonetheless, it is convenient to refer to it as a separate affidavit, which it is.

[3] Exhibit GC-2 to the First Affidavit.

[6] Exhibit GC-1 to the First Affidavit; First Affidavit, [3]. On 26 May 2017, a creditor of the Company, Fokust Pty Ltd, had issued a winding up application against the Company for failure to comply with a statutory demand: First Affidavit, [2].

[7] First Affidavit, [8], [20]-[23].

[11] Liquidator's report to creditors, 8 August 2018, Exhibit GC-7 to the First Affidavit ('August 2018 Report'). First Affidavit, [19].

[16] In the DCT Notice of Objection, the DCT says that he is a creditor of the Company in the amount of $2,602,970.55.

[17] Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83.

[18] Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] NSWCA 85, [126].

[19] [2017] NSWSC 784.

[20] Re City Pacific Limited, [10]-[11].

[21] [2006] NSWSC 315, [25]. Austin J had earlier summarised these same factors in Re ACN 076 673 875 Ltd [2002] NSWSC 578; (2002) 42 ACSR 296. Cited with approval by Judd J in Re Ascot Vale Self Storage Centre Pty Ltd [2015] VSC 751.

[22] Now repealed, but liquidators can use s 90-15 of the Insolvency Practice Schedule (Corporations), which is now Schedule 2 to the Act ('IPS'), to seek directions.

[23] Re City Pacific Limited, [12].

[24] Re City Pacific Limited, [13]. Cited with approval in Re South Head & District Synagogue (Sydney) (in liq) [2017] FCA 1206, [19]. See also Re Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 642, [25].

[25] Exhbit GC-7 to the First Affidavit, pp.10-11.

[26] Exhbit GC-7 to the First Affidavit, p.11.

[27] First Affidavit, [44]; Exhibit GC-15 to the First Affidavit.

[30] Third Affidavit, [3]; Exhibit GC-1 to the Third Affidavit.

[31] [2015] FCA 1256 ('Marsden').

[32] Exhibit GC-15 to the First Affidavit.

[33] See paragraph 18 above.

[34] By virtue of the provisions of the Pretium Draft Agreement summarised in 23(c), (e) and (i) above.

[35] By virtue of the provisions of the Pretium Draft Agreement summarised in 23(f), (g) and (h) above.

[36] By virtue of the provisions of the Pretium Draft Agreement summarised in 23(b) above.

[37] Re City Pacific Limited, [20].

[38] For an explanation of the transitional provisions and the continued operation of s 473(3) of the Act, see Re Tuscan Property Development Pty Ltd [2018] VSC 511, [22]. As the Liquidator was appointed before 1 September 2017, the old provisions apply.

[39] [2012] VSC 650 (14 December 2012).

[40] [2011] VSC 380; (2011) 85 ACSR 144 ('Thackray').

[41] Traditional Values, [20], citing Thackray [2011] VSC 380; (2011) 85 ACSR 144, [60], [63]-[64] (citations omitted).

[42] [2017] NSWSC 668 ('Sakr').

[46] [2017] NSWCA 38 ('Sanderson').

[48] First Affidavit, [36]; Exhibit GC-8 to the First Affidavit.

[49] Exhibit GC-7 to the First Affidavit.

[50] Exhibit GC-5 to the First Affidavit.

[51] Exhibit GC-7 to the First Affidavit.

[52] First Affidavit, [37]; Exhibit GC-9 to the First Affidavit.

[53] First Affidavit, [38]; Exhibit GC-10 to the First Affidavit.

[54] First Affidavit, [39]; Exhibit GC-11 to the First Affidavit.

[55] First Affidavit, [40]; Exhibit GC-12 to the First Affidavit.

[56] First Affidavit, [44]; Exhibit GC-15 to the First Affidavit.

[57] Exhibit GC-17 to the First Affidavit.

[58] Exhibit GC-18 to the First Affidavit.

[59] Exhibit GC-5 to the First Affidavit.

[60] Exhibit GC-5 to the First Affidavit.

[62] I have deduced this from Cidec Pty Ltd being a creditor listed as having provided a proxy for voting at the Creditors' Meeting: see First Affidavit, [43].

[72] Exhibit GC-6 to the First Affidavit.

[73] Exhibit GC-6 to the First Affidavit.

[74] In this regard, the Liquidator relied on Re F Basile & Associates Pty Ltd [2016] VSC 690; Barbo Pty Ltd v Investment and Construction Enterprise Pty Ltd [2012] VSC 71.

[75] This is an area of work which is complained of under Ground 3 in the DCT Notice of Objection.

[76] See paragraphs 44 and 45 above.

[77] [2019] FCA 93, [279]-[285] ('Cedenco').

[79] Sanderson, [57]-[58]. See also Cedenco, [285].

[80] In accordance with paragraph 103 above.

[81] In accordance with paragraph 108 above.

[82] In accordance with paragraph 109 above.

[83] In accordance with paragraph 110 above.

[84] In accordance with paragraph 112 above.

[85] In accordance with paragraph 114 above.

[86] In accordance with paragraph 115 above.

[87] In accordance with paragraph 117 above.

[88] 65% of $335,352.61 is $217,979.20. 4.5% of $217,979.20 is $9,809, which is then deducted from $335,352.61 to arrive at the amount.

[89] In accordance with paragraph 103 above.

[90] In accordance with paragraph 118 above.

[91] In accordance with paragraph 123 above.