Australian Securities and Investments Commission v Letten

1. The amounts specified in the Schedule to this Order, as the Receivers' interim remuneration for the period 3 July 2010 to 31 December 2011 (the Relevant Period), are approved for payment to the Receivers on an interim basis. 2. The Receivers are justified in allocating their remuneration, costs and expenses for the Relevant Period as follows: (a) as to their remuneration, costs and expenses for "general or miscellaneous work" (as described in Section B1 of the Thirty Seventh Affidavit) for the Relevant Period - to be allocated as set out in paragraph 2(a) of the Orders of Justice Gordon dated 22 December 2010; (b) as to their remuneration, costs and expenses for work related to LGHA (as described in Section B2 of the Thirty Seventh Affidavit) for the Relevant Period - in accordance with paragraph 2(b) of the Orders of Justice Gordon dated 22 December 2010. 3. The Receivers are justified in treating the costs of the liquidation of the Corporate Defendants as expenses of the receiverships. 4. Until further order, upon the drawdown of any funds for the purposes of payment of the Receivers' interim remuneration, costs and expenses, the Receivers are to file with the Court a Certificate in accordance with the form at Annexure 1 to these Orders. 5. Subject to further direction, a Registrar of the Court review and fix the remuneration to which the Receivers are properly entitled and the costs and expenses they properly incurred in the performance of their duties and the exercise of their powers as Court appointed receivers and managers of each of the entities and schemes to which they were appointed receivers and managers by the Appointment Order, the SY21 Appointment Order and the Additional Schemes Order for the Relevant Period. 6. By no later than 4:00pm on 19 April 2012 the Receivers are to serve upon all investors identified by the Receivers to be investors in any of the Schemes (Investors): (a) a copy of these Orders; (b) a circular: (i) advising the Investors of the Remuneration Application; (ii) informing them that by no later than 7 June 2012 (the Objection Period) any Investor may file and serve a notice in writing identifying any of the Receivers' claims for remuneration, costs and expenses to which they object, together with a short but specific statement outlining the nature and grounds of the objection and the amount (if any) they say is claimable; and (iii) informing them that a copy of the Remuneration Application and affidavit material filed in support of the Remuneration Application are available on the secure section of the Investors' website (www.kpmg.com.au/lettenschemes); (c) a copy of the Remuneration Application; (d) a copy of each affidavit and submissions filed in support of the Remuneration Application, together with the exhibits thereto. 7. Service for the purposes of paragraph 6 may be effected: (a) in the case of paragraph 6(a) and 6(b): (i) by email in respect of Investors who have notified the Receivers that email is their preferred method of communication; and (ii) otherwise by ordinary post; and (b) in the case of paragraphs 6(c) and 6(d), by making copies of the documents available on the secure section of the Investors' website (www.kpmg.com.au/lettenschemes).
2. The Secured Lender, any other party and any Investor who wishes to shall file and serve by 7 June 2012 a notice in writing identifying any of the Receivers' claims for remuneration, costs or expenses to which they object, together with a short but specific statement outlining the nature and grounds of the objection and the amount (if any) they say is claimable in the form of Annexure 2 to these Orders.
3. As soon as reasonably practicable after the expiration of the Objection Period, the Registrar will advise the Receivers if the Registrar requires further information to fix the remuneration, costs and expenses for the Relevant Period and copies of any such further information provided to the Registrar will also be provided to the Secured Lenders and ASIC.
4. If the Registrar requests further information to fix the remuneration, costs and expenses, the Receivers will provide such further information within 7 days of receipt of the Registrar's request.
5. As soon as reasonably practicable after receipt of the further information referred to in paragraph 10, the Registrar is to fix the Receivers' remuneration, costs and expenses for the Relevant Period and deliver short written reasons for his or her determination.
6. The Receivers, any other party, the Secured Lender and any Investor may apply to the Court to review the Registrar's determination and the Court may review the Registrar's determination and fix the remuneration, costs and expenses of the Receivers for the Relevant Period.
7. Costs reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ANNEXURE 1 Certificate in respect of the Remuneration Application. Filed in Victoria District Registry IN THE MATTER OF MARK RONALD LETTEN & OTHERS No. VID 95 of 2010 To: The Registrar Federal Court of Australia Victoria District Registry 305 William Street Melbourne VIC 3000 Fax: (03) 8600 3351 NOTE: For the purpose of this Certificate: (a) Receivers, Scheme and Property have the meanings ascribed to those terms in the Orders of Justice Gordon made in this proceeding on 25 February 2010, 4 March 2010 and 30 July 2010; and (b) Remuneration Application means the application of the Receivers by amended interlocutory process dated 4 April 2012 for approval of their remuneration and expenses in respect of the period 3 July 2010 to 31 December 2011. On [insert date] the amount of [insert amount] was paid to the Receivers from Scheme Property in connection with the [specify scheme] as interim remuneration (including costs and expenses). In accordance with the Orders of Justice Gordon dated 13 April 2012, the Receivers certify as follows: A. Applicable where the interim payment has been made at a time when there remains a shortfall of monies due to the Secured Lender. □ The Receivers and the Secured Lender have agreed that the above interim payment of remuneration (including costs and expenses) is appropriate. B. In all cases The above interim payment is consistent with those Orders. Signed: ………………………… Date: ……………………….. Damian John Templeton/Philip Hennessy ANNEXURE 2 Notice of submission in respect of the Remuneration Application. Filed in Victoria District Registry IN THE MATTER OF MARK RONALD LETTEN & OTHERS No. VID 95 of 2010 To: The Registrar Federal Court of Australia Victoria District Registry 305 William Street Melbourne VIC 3000 Fax: (03) 8600 3351 I, __________________________________________, wish to make objection in respect of the Remuneration Application regarding the Schemes, in which I am an investor: (specify schemes here) I object to the following claims for remuneration and expenses: (specify the claims objected to here. Attach additional pages as necessary) The details of my objection are: [Set out in the space below the nature and grounds for each objection and the amount (if any) which you say is properly claimable. Attach additional pages as necessary]: Signed: ________________________________ Name: ________________________________ Address: ________________________________ Phone no: ________________________________ Email address: ________________________________ Date: ________________________________ SCHEDULE OF REMUNERATION AND EXPENSES INCURRED BY THE RECEIVERS AND INTERIM REMUNERATION (85% OF RECEIVERS' FEES AND 100% OF EXPENSES INCURRED) FOR THE PERIOD FROM 3 JULY 2010 TO 31 DECEMBER 2011 (INCLUSIVE) Scheme ($ excluding GST) Remuneration and expenses incurred Interim remuneration (85% of Receivers' fees and 100% of expenses incurred) YVG 2,696,031.78 2,453,358.92 Glenbelle 2,191,641.59 2,024,979.55 Reef House 1,066,375.25 954,129.56 Twinview Nominees 125,833.37 111,339.71 The Glen Centre 169,845.39 152,057.84 Nicholson Street 452,064.75 402,620.22 Cimitiere House 403,510.89 359,970.22 George Street 41,897.13 35,667.21 Low Head 340,144.97 303,636.90 Queen Street 20,837.06 17,735.15 Howleys Road 19,052.62 16,218.38 Wellington Road 24,527.22 21,108.97 National Boulevard 17,011.32 14,483.27 Simms 14,894.04 12,730.50 Healesville Walk 21,398.21 18,592.15 SY21 209,440.90 200,729.73 Aurora 76,306.21 65,321.04 Cass Bay 70,557.72 60,339.49 Moorhouse 88,044.69 75,499.84 Mt Hutt 87,082.43 76,771.93 Tomasetti 65,618.52 56,167.34 LGH Holdings 4,068.90 4,068.90 NZD$ 3,951.00 NZD$ 3,951.00 Additional Schemes (Priority fees) 4,076.10 4,076.10 General 640,065.28 640,065.28 Common Fund 240,740.38 205,750.14 The Glen Centre Hawthorn - Liquidation 8,693.46 7,499.18 Twinview Liquidation 7,962.66 6,878.00 General Liquidation 41,643.63 35,865.02

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 95 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: GORDON J DATE: 13 April 2012 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 This is the nineteenth judgment in a series about unregistered managed investment schemes in which Mr Mark Ronald Letten (Mr Letten), the first defendant, was involved. The history of the proceedings were most recently summarised in Australian Securities and Investments Commission v Letten (No 7) (2010) 80 ACSR 401 at [7]-[12]. I adopt the same terms and abbreviations in these reasons for judgment. 2 This judgment concerns the remuneration of the Receivers for the period from 3 July 2010 to 31 December 2011 (the Relevant Period). The Receivers seek payment of 85% of their claim for remuneration and 100% of the expenses incurred for the Relevant Period. The claim is an interim claim in two respects - first, the work is not complete and secondly, the Receivers propose that they be entitled to immediate payment of 85% of their remuneration and 100% of their expenses on the basis that if after a formal taxation of their costs by a Registrar of the Federal Court their entitlement to remuneration is less than 85% of the amount claimed (and less than 100% of the expenses claimed), the Receivers and their firm, KPMG, will repay the difference with interest at a rate to be determined by the Court. This is the second interim claim for remuneration. The first covered the period from the date of their first appointment (25 February 2010) up to and including 2 July 2010: see Australian Securities and Investments Commission v Letten (No 9) [2010] FCA 1459 (the Initial Claim). 3 For the reasons that follow, I would grant the Receivers the orders that they seek.

Procedural history 4 By paragraph 20 of the Appointment Order, paragraph 15 of the SY21 Appointment Order and paragraph 29 of the Additional Schemes Appointment Order, the Court ordered, inter alia, that: 1. the Receivers shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of their duties and the exercise of their powers as receivers and managers over the Property of each Scheme, as may be fixed by the Court on the application of the Receivers; 2. the Receivers' remuneration is to be calculated on the basis of the time reasonably spent by the receivers and managers, their partners and staff, at the rates specified in Annexure B to the Appointment Order; 3. the Receivers' remuneration is to be paid out of the assets of the Scheme, provided that the Receivers' remuneration and reasonable costs and expenses must not be paid in priority to any debt the payment of which is secured by the Property of the Scheme (including by any floating charge) without the consent in writing of the relevant Secured Lender; and 4. the above orders are not to affect the rights of any prior encumbrances of the Property of the Schemes or the Property of the defendants, including the rights of any Secured Lender. 5 On 11 November 2010, the Court directed, inter alia, that the Receivers were justified in paying the following amounts out of the proceeds of sale of each asset of the Schemes and the Corporate Defendants, in the following order of priority: 1. priority receivership costs, as fixed by the Court, to the Receivers; 2. any liabilities which were secured by that asset, to the relevant Secured Lender; 3. the amount of trust creditor claims in respect of the relevant Corporate Defendant (if any) in respect of which the relevant Corporate Defendant had a right of indemnity and lien, to the relevant Corporate Defendant; and 4. the balance (if any) into a bank account held in the name of the Receivers and designated as the "Common Fund" account (the Common Fund). These orders will be referred to as the Pooling Orders: see Letten (No 7).

Proposed Remuneration Orders 6 There are in fact two groups of costs - "Priority Costs" and "Non-Priority Costs". The distinction to be drawn between them was explained in Letten (No 9) at [6]-[7]. 7 Under the Pooling Orders (see [5] above), the Non-Priority Costs rank first in priority in the Common Fund. The Receivers did not seek directions from the Court as to any allocation as between Priority and Non-Priority Costs.

Effect of the proposed remuneration orders 8 The Remuneration Orders proposed by the Receivers (the Proposed Remuneration Orders) are substantively identical to that approved by the Court in relation to the Initial Claim, namely: 1. to set up a regime to enable a Registrar to fix the appropriate amount of the Receiver's total costs for the Relevant Period ; and 2. in the interim, to allow the Receivers to obtain payment of 85% of their remuneration and 100% of their expenses (in respect of the Relevant Period) from the available assets of applicable Schemes. 9 As the Receivers submitted, the intended effect of the Proposed Remuneration Orders is "to replicate the cost effective, practical regime for dealing with the Receivers' remuneration, costs and expenses" that was put in place for the previous application: see Letten (No 9). 10 As a result of the Pooling Orders and the Proposed Remuneration Orders: 1. The Receivers would recover on an interim basis 85% of their priority fees and 100% of their expenses referable to any particular Scheme out of the proceeds of sale of that particular Scheme's property (i.e. from proceeds received at completion or from non-refundable deposits paid by purchasers) or surplus cashflow generated by that Scheme's property after the payment of all costs necessary to preserve the property (subject to the Secured Lender's consent) or from the Common Fund (once established). 2. In the interim, a taxation of their costs before a Registrar of the Federal Court, and subsequent determination of objections by the Court, would proceed on the basis that: 2.1 if any amounts recovered on an interim basis by the Receivers (i.e. 85% of the fees or 100% of the expenses) were greater than the amount determined by the Registrar and any subsequent determination by the Court, the Receivers would refund the relevant trustee company, Secured Creditor or the Common Fund (as the case may be) together with interest at a rate to be determined by the Court; and 2.2 if the Court determined that the Receivers were entitled to recover some or all of the additional 15%, then they could do so only after the Court had considered the full claim by the Receivers.

Analysis 11 Two questions again arise - (1) should the Receivers be entitled to immediate payment of their remuneration, costs and expenses on an interim basis and (2) if so, is 85% of the remuneration and 100% of the expenses the appropriate percentage and what other safeguards should be put in place.

Entitled to payment on an interim basis? 12 There is little doubt that the Receivers and their legal advisors have undertaken a significant amount of work since 3 July 2010 without payment. The issues that have arisen and continue to arise are complex and time consuming and, on some occasions, subject to time pressures. The task still is not complete and is unlikely to be so in the near future. In my view, it is appropriate that the Receivers be entitled to immediate payment of their remuneration, costs and expenses for the Relevant Period on an interim basis. The Court's power to make the Proposed Remuneration Orders was addressed in Letten (No 9) and is not in issue: see Letten (No 9) at [13].

Justifications and Safeguards 13 Any order authorising the Receivers to be entitled to immediate payment of their remuneration, costs and expenses on an interim basis must be subject to certain safeguards. In the present case, the appropriate safeguards are: 1. each time an interim drawing is made, the Receivers will file and serve a certificate confirming that the drawing is consistent with the orders allowing for the interim payment. The text of the certificate will require the Receivers to identify the Scheme and the amount paid to the Receivers from Scheme Property in connection with the Scheme as interim remuneration (including costs and expenses); 2. a Registrar of the Court must review and fix the remuneration to which the Receivers are properly entitled and the costs and expenses they properly incurred in the performance of their duties and the exercise of their powers as Court appointed receivers and managers of each of the entities and schemes to which they were appointed receivers and managers by the Appointment Order, the SY21 Appointment Order and the Additional Schemes Appointment Order for the Relevant Period ; 3. prior to any review of the remuneration claim by a Registrar of the Court, the Secured Lender, any other party and any Investor may file and serve a notice in writing identifying any of the Receivers' claims for remuneration, costs or expenses to which they object, together with a short but specific statement outlining the nature and grounds of the objection and the amount (if any) they say is claimable in a specified form; 4. the Receivers, any other party, the Secured Lender and any Investor may apply to the Court to review the Registrar's determination and the Court may review the Registrar's determination and fix the remuneration, costs and expenses of the Receivers for the relevant period; 5. the Receivers and their firm, KPMG, must provide an undertaking to repay any overpayments (including interest) if the amount determined by the Registrar (or the Court on reviewing the Registrar's determination) is ultimately less than 85% of the amount claimed and paid on an interim basis. If the overpayment is in respect of property where there exists a Secured Lender which is still owed secured monies, then the repayment would go to that Secured Lender. In all other cases, the overpayment will be made back to the bank account from which the interim payment was made, to be subsequently dealt with in accordance with the Pooling Orders. In my view, those safeguards (being the same safeguards adopted in relation to the first application) adequately protect the interests of the other stakeholders.

Percentage? 14 The next issue was the percentage of the remuneration claim that the Receivers should be entitled to receive on an interim basis. The Receivers submitted, and I accept, that 85% is appropriate. The figure is arbitrary. 15 However, a number of facts and matters should be noted. First, the rates to be charged by the Receivers and their staff were agreed on their appointment. Whether the work ultimately carried out was appropriate to be charged by the Receivers is a matter for the Registrar including, but not limited to, the charge out rate and quantum. 16 Second, the Receivers informed the Court that they and their legal advisers had discounted the fees claimed by 10% (compared to the rates approved by the Court). Again, whether that ultimately is a relevant consideration is a matter for the Registrar (and any subsequent Court review of the Registrar's determination). 17 Third, the interim payment being limited to 85% of the fees claimed provides a sufficient buffer to ensure that the Receivers are not overpaid: Letten (No 9) at [15]-[19] and the authorities cited. That buffer must be considered in light of the following additional facts and matters: 1. the review of the Initial Claim resulted in a 5% reduction of the Receivers' total claim for remuneration, costs and expenses: see decision of Deputy Registrar Pringle of 12 September 2011. In other words, the buffer was sufficient; 2. the current application is limited to the Relevant Period and since then a substantial amount of further work has been undertaken by the Receivers; 3. in preparing the application the subject of these reasons for decision, the Receivers contended that they have amended the claim to reflect matters raised by Deputy Registrar Pringle during the review of the Initial Claim. Whether that is so is a matter for the Registrar (and any subsequent Court review of the Registrar's determination). 18 Fourth, the interim payment of 100% of the expenses claimed is reasonable taking into account that the Receivers are undertaking to repay any amounts determined to be overpayments and Deputy Registrar Pringle approved the Receivers' expenses claim in full for the Initial Claim. 19 Finally, it is necessary to say something about the costs of the liquidation of the various Corporate Defendants. The Receivers submitted that those costs be treated as an expense of the Receivership. The basis for that submission was that the liquidation of the Corporate Defendants was a necessary step in complying with the Appointment Orders and the Additional Schemes Appointment Orders which required the Receivers to conduct an orderly winding up of the Schemes. Put another way, the Receivers submitted that the liquidation of the Corporate Defendants that operated the Schemes was a part (a necessary part) of the winding up of the Schemes. Indeed, as the Receivers submitted, it was in fact the plaintiff, the Australian Securities and Investments Commission, that applied to wind up the Corporate Defendants as part of the overall wind up of the Schemes. The costs are not significant - $58,299.75. In my view, for the reasons stated the costs of the liquidation of the various Corporate Defendants should be treated as an expense of the Receivership.

Conclusion 20 It is for those reasons that I will grant the Receivers the Orders that they seek in relation to interim payment of their remuneration, costs and expenses for the Relevant Period. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.