BETWEEN : AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Receiver's remuneration - How assessed - Turns on own facts

Sufficient evidence to find prima facie amount claimed by receiver justified

Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280

Re Solfire Pty Ltd (No 2) (1998) 16 ACLC 1156

Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96

ACN 004 323 184 Pty Ltd [2002] VSC 353

Computer Machinery Co Ltd v Drescher [1983] 1 WLR 1379

Gava v Grljusich, unreported; FCT SCt of WA; Library No 970492; 19 September 1997

GIS Electrical Pty Ltd v Melsom & Ors [2001] WASC 314

In re Glasdir Copper Mines Ltd; English Electro­Metallurgical Company Ltd v Glasdir Copper Mines Ltd [1906] 1 Ch 365

Mellor v Mellor [1992] BCC 513

Price v Price [1904] VicLawRp 99; (1904) 29 VLR 719

Re Application of Central Commodities Services Pty Ltd [1984] 1 NSWLR 25

Re D S Millard & Sons Pty Ltd (1997) 15 ACLC 808

Re Korda; Stockford Ltd [2004] FCA 1682; (2005) 23 ACLC 150

Re Reiter Bros Exploratory Drilling Pty Ltd [1994] TASSC 42; (1994) 12 ACLC 430

Sigma Chemicals (1986) Pty Ltd as Trustee of the Sigma Chemicals Trust v Brown & Ors [2002] WASC 52

Strapp v Bull & Sons & Co [1895] 2 Ch 1

Western National Earthmoving (1998) 16 ACLC 885

1 MASTER SANDERSON: By order of Simmonds J on 29 October 2004, Mr Barry Honey of Honey and Honey was appointed receiver and manager of the first defendant. The second defendant is presently, and has at all material times been, the sole director and a shareholder of the first defendant. By interlocutory process dated 28 February 2005, the receiver applied for the following orders:

"1 An order that the interim receiver and manger's remuneration and expenses in the amount of $268,594.75 (inclusive of goods and services tax), for the period commencing 29 October 2004 and ending 4 February 2005:

1.1 Be approved and fixed by this Honourable Court;

1.2 Be paid to the interim receiver and manager from the funds held in the Australian Foods Company Pty Ltd receivership account, being St George Bank Limited account number 552 302 365 at St Georges Terrace Perth (BSB 336076) in the name of Barry John Honey as receiver and manager of Australian Foods Company Pty Ltd (Receiver and Manager Appointed) (Account).

2 An order that the interim receiver and manager's legal fees (including disbursements and goods and services tax) incurred in relation to the matter herein for the period commencing 29 October 2004 and ending 4 February 2005 in the amount of $57,381 be approved and fixed by this Honourable Court and paid from the Account.

3 An order that the reasonable ongoing costs of storage of the books and records of the first defendant and the reasonable costs of delivery of those records to the liquidator of the first defendant be approved and paid from the Account.

4 ...".

2 The plaintiff did not oppose the orders sought by the receiver and manager. However, the second defendant has opposed approval of the receiver's remuneration. Both the receiver and the second defendant have filed a number of affidavits in relation to this application.

3 All parties accepted that the principles upon which a receiver's remuneration are to be assessed are the same as those which apply to provisional liquidators and liquidators. The procedure to be followed is that set out by the Full Court in Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96. Kennedy and Ipp JJ endorsed the observation of Young J in Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280, where his Honour noted (at 288) "the principles to be applied (in assessing liquidators' remuneration are) in some respects obscure". Their Honours said that "the procedure generally applicable is that long utilised in the passing of accounts ... as set out in O 45 r 4". Their Honours then went on to say (at 102 - 103):

" As a starting point, in our view, the onus is on the provisional liquidator to establish that the remuneration claimed is fair and reasonable. It is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues. The initial task is to consider whether, prima facie, the provisional liquidator has made out a case for the determination of the amounts claimed. The fact that there may be no person who objects to the claim, or any part of the supporting testimony, or that objectors advance unsustainable arguments, or do not properly formulate their objections, cannot detract from the court's duty in this respect. The judicial officer conducting an inquiry under s 473(2) is required to make an independent determination of the remuneration claimed, even if there is an absence of objectors, or appropriately detailed objections, or objections advanced on arguable grounds. Of course, once the court is satisfied that the provisional liquidator has made out a prima facie case that the remuneration claimed should be allowed, the absence or inappropriateness of points taken by objectors becomes relevant.

Should the provisional liquidator fail to provide adequate evidentiary material to enable the court to determine whether the amounts claimed are fair and reasonable, no order should be made: Re Solfire Pty Ltd (In liq) (No 2). Thus, for example, the mere listing of the persons who performed the work, the hours worked by each, and the amounts claimed, may well be insufficient material for the court to come to a proper decision: Re Reiter Bros Exploratory Drilling Pty Ltd.

Ordinarily, to commence the proceedings, the provisional liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly. The statement of account should also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.

The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred."

4 Their Honours then referred again to what was said by Shepherdson J in Re Solfire Pty Ltd (No 2) (1998) 16 ACLC 1156 and concluded that it was not necessary to lay down any absolute rule concerning the statement of account to be provided by a provisional liquidator. However, their Honours said the overriding principle was that sufficient information was to be provided to the Court to enable it to perform its function under s 473(2) of the then Corporations Law 2001. Their Honours then detailed what procedure was to be followed if the Court was satisfied on a prima facie basis that the liquidator or receiver had provided sufficient material to allow a determination as to whether the amounts claimed were fair and reasonable. For present purposes, it is not necessary to deal with these further steps in the assessment. It is the second defendant's position that insufficient material has been provided to allow a prima facie finding that the amount claimed is reasonable and no order should be made.

5 Before leaving the Venetian Nominees decision, it is instructive to look at just how the Full Court dealt with the information provided by the (in that case) provisional liquidator to justify his fees. The Court noted that the provisional liquidator produced an invoice showing that he and employees of his firm had spent between 50 and 60 hours working on tasks relating to his duties as provisional liquidator. The time spent for various individuals was given and hourly rates were specified. Attached to that invoice was a document which purported to set out: "Details of work performed for periods 2 October 1997 to 31 January 1998". Their Honours go on to say (at 104):

"This document was in very general terms. It identified in an all-embracing fashion certain tasks that were performed, but did not specify who performed them, and how long each task took. Furthermore, many of the tasks were described in such a way that it was impossible to discern why they were necessary, what precisely was involved in performing them, and what level of complexity or responsibility attached to them. The descriptions tended more to conceal this kind of detail rather than reveal information essential to the court's function of determining whether the remuneration charged was fair and reasonable."

Their Honours then go on to quote a series of entries which were to be found in the schedule to the invoice. It appears that no time was specified for particular tasks undertaken, nor was there any indication as to who may have undertaken those tasks. For instance, one of the entries was in the following terms:

"Discussions and correspondence to Smith Broughton and Sons regarding retention of plant and equipment pursuant to lien to satisfy outstanding fees and disbursements."

6 The material put before the Court did not apparently specify who undertook these discussions, who wrote the letters and what time they spent on these tasks. There is also no indication as to how the tasks undertaken related to the duties of the provisional liquidator.

7 Having set out some examples of the material before the Court, their Honours continued (at 105):

"The information so provided gave the learned Master little opportunity to assess what work was done and what each task involved; it gave him no opportunity to determine who did the work, or how long it took for each particular category of work to be performed. Nothing was placed before the learned Master to enable him to assess what work was done by the particular persons for whose hours of work the respondent sought to charge. Nothing was said as to how long any particular category of work took, or who performed any particular category of work."

8 It is worth pausing at this point to note just what is involved in what might be described as the first stage of assessing a receiver's remuneration. It is a matter of the receiver putting evidence before the Court which allows a proper assessment to be made as to whether the work undertaken was appropriate or necessary. The level of detail required will depend on the circumstances of the case. It matters not whether there are parties objecting to the amount of remuneration claimed by the receiver. If there are objectors, then what they have to say can be taken into account in assessing whether or not sufficient material is before the Court. But the chance for the objectors to raise specific concerns come later in the process.

9 In theory, the procedure is relatively straightforward. But as this case illustrates, in practice it is fraught with difficulty.

10 It is appropriate at this point to turn to the affidavit evidence filed by the receiver ("Mr Honey"). The main affidavit relied upon by the receiver was sworn by him on 25 February 2005. The affidavit sets out the circumstances of the appointment and the scope of the powers given to the receiver by the court order. In par 5, Mr Honey says that he engaged the firm of McGrath Nichol+Partners Chartered Accountants to assist him. He then lists a number of tasks carried out by him, his assistants and McGrath Nichol+Partners. These tasks are described in general terms. For instance, he says that he "Secured what remained of the first defendant's computer system at my appointment" (par 5.2) and "Identified and secured stock and other assets of the first defendant" (par 5.4). By par 6, Mr Honey says that he made payments on behalf of the first defendant totalling $29,751.95 and that he collected $347,474.87. He says he currently holds in cash an amount of $317,722.92. As I understand it, that means if the remuneration is approved, the first defendant will not have sufficient funds to meet the receiver's costs and disbursements. It will be about $8000 short. Given that its entire cash assets will have been dissipated by payment of the receiver's fees and disbursements, this is a matter of some concern to the first defendant and to the second defendant.

11 Returning, then, to the affidavit, Mr Honey sets out a summary of his remunerations costs and disbursements for the period in question. In par 12 he states he has prepared "a detailed statement of time costs and disbursements for the Remuneration Period". He says that the statement itemises the details of the work done, the identity of the persons who did the work, the grade of the person who did the work and the time taken for doing the work, and the rates charged. He confirms that the statement is true and correct. He also says, at par 13, that the rates are charged in accordance with his firm's normal fee scale and the scale of rates provided to the plaintiff prior to his appointment. By par 14, he sets out the work undertaken by his lawyers (and the legal fees incurred). Once again, the description of the work undertaken is in general terms. For instance, he says that the lawyers were involved in "Assisting me with numerous aspects of my investigations into the affairs of the first defendant, including the status of certain contracts and issues pertaining to my right as receiver and manager to sell certain stock" (par 14.3). By par 15, Mr Honey seeks an allowance for reasonable costs and disbursements of ongoing storage of books and records and the cost of delivering those records to the liquidator of the first defendant. He concludes, in par 16, by saying that he believes the claim for remuneration is both fair and reasonable.

12 The annexures to the affidavit provide considerable details as to what was done by Mr Honey and his firm and by the firm of McGrath Nichol+Partners. Dealing first with Mr Honey and his firm, 22 pages of time costing information is provided. I can illustrate the nature of that information by referring to the very first entry, annexure "BJH23". This was made on 29 October 2004 and the "Description of work done" is in the following terms:

"Instructing Phillips Fox, Solicitors, to act for me in relation to this engagement including provision of background information and discussion of the issues in connection with which I will likely need advice."

13 Those discussions were said to have occupied "0.5 hours". Mr Honey specifies his charge-out rate at $350 per hour. Work was also undertaken by Prudence Honey and Philippa Honey, who are charged out at a lesser rate. The total amount claimed by Mr Honey on behalf of his firm is $61,355, plus disbursements of $145.37.

14 McGrath Nichol+Partners have provided similar detail in relation to the work they undertook. The detail that they have provided runs to 49 pages. They have listed nine individuals who were involved in the receivership. They range from Mr Shaun Fraser, a partner whose charge-out rate is $460 per hour, to Ms Julie Nabor, whose charge-out rate is $100 per hour. The time spent for each individual is noted. The total costs claimed are $142,555.70, plus $1879.37 in disbursements.

15 The level of detail provided can be illustrated by referring to the first entry for Mr Shaun Fraser on 29 October 2004. The entry for that date is in the following terms:

"Phone call with Barry Honey re his

appointment as interim Receiver and

Manager of Australian Foods Corporation

Pty Ltd ('AFC') 0.3 hours

Discussions with staff in relation to the appointment 0.2 hours"

16 There is nothing surprising in any of this material. Clearly, it is drawn from time sheets maintained by each of the individuals concerned. If necessary, those original time sheets could be called for, but in all probability they would add little to the information provided by the receiver. The way in which the receiver and his staff have recorded the time spent accords with standard commercial practice. The actions taken by each individual concerned are adequately, if cryptically, described. It is difficult to see what further information could have been provided.

17 It is the second defendant's position that the material provided by the receiver is wholly inadequate. The second defendant relies on an affidavit of Peter Reymond Quigley, sworn 25 April 2005. Mr Quigley is a registered official liquidator and has been so registered since 1987. He says that he has worked in the field of corporate insolvency since 1976. He has reviewed the information provided by Mr Honey and concludes that it is not possible for him to properly assess whether the remuneration claimed is fair and reasonable. The essence of Mr Quigley's complaint is outlined in par 5 of his affidavit. It is in the following terms:

"In order to determine whether the time charged was reasonable for the tasks referred to in paragraph 5 (of Mr Honey's affidavit) it is necessary for the details of the work done be allocated to the tasks performed. The allocation would enable a reviewer to consider the following matters all of which relevantly impinge upon whether the time claimed for undertaking a particular task was fair and reasonable: (a) whether staff of an appropriate level of skills and experience were allocated to undertake the work relative to the nature of the task; (b) whether the work associated with a task was efficiently carried out; (c) whether any duplication of effort had occurred; (d) whether the work performed in relation to each task was necessary."

18 Mr Quigley then goes on to expand upon each of these matters, setting out what further material in his view is required to allow a proper assessment of whether the amounts claimed are reasonable.

19 In fairness to the second defendant and Mr Quigley, it must be acknowledged that some of the matters he raises are cause for concern. For instance, in par 11(f) of his affidavit he refers to "Notifications to Taxation Authorities". He points out that the schedules to Mr Honey's affidavit disclose a claim for 7 hours and 48 minutes at a cost of $882.80 in relation to notifying taxation authorities of his appointment. Mr Quigley then says:

"It has been my experience that when acting an [sic] a receiver or liquidator that the giving of written notification to the Australian Taxation Office (ATO) and the Office of State Revenue is a relatively simple task and involves no more than approx. 12 minutes of work ... Mr Honey has claimed that it took 7 hours and 48 minutes to do this work. However the materials before the court do not disclose what, if any, additional level of complexity was involved in carrying out of this work."

20 The receiver has made no attempt to answer this or other queries raised by Mr Quigley. But, in my view, at this stage of the proceedings he has no obligation to do so. What I have to determine is whether or not the information provided is enough to establish prima facie that the work was done and that the costs were reasonably incurred. I am satisfied that the level of detail is sufficient to allow me to reach that conclusion. As I have said, it is difficult to know what more, other than the working time sheets of particular individuals, could have been provided by the receiver. There is no reason to doubt the honesty or the integrity of the persons involved in the receivership. The materials presented are adequate for the first stage of the process.

21 Having said that, the weakness of the process is immediately obvious. Nowhere in Mr Honey's affidavit is there any indication of what he and his staff were actually doing. That is not to say that an adequate description is not provided of the time spent by each individual. The question, rather, is what were Mr Honey and his colleagues attempting to achieve. That is nowhere explained. Nor is it explained how it is that such significant costs were incurred in such a relatively short period of time. The mechanism and the process which led to the incurring of those costs is explained; but the overall purpose behind the actions of the receiver remains unclear. That is not something that is of concern at this stage. Insofar as the receiver is obliged to provide support for the claim for remuneration to allow a prima facie assessment to be made, I am satisfied that he has satisfied the requirements.

22 For the sake of completeness, I ought mention that it was not just the costs incurred by the receiver which were challenged by the second defendant. It was the second defendant's position that the disbursements to be paid to the solicitors engaged by the receiver were not sufficiently detailed to allow these amounts to be properly claimed. The accounts from the solicitors were supported by time costing records which, while not as detailed as the records provided by Mr Honey and McGrath Nichol+Partners, nonetheless explain the time spent for the purposes of the first stage process and I am satisfied that the material provided is sufficient.

23 Having reached this conclusion, further directions are now required to allow a full assessment of the receiver's claim for remuneration to be made. I will hear the parties as to the precise directions which are appropriate. I will also deal with the question of costs.