By Interlocutory Process filed on 30 October 2018, the Applicants, Mr Thorn and Mr Tonks as former voluntary administrators, and now liquidators, of EMA Consulting Engineers Pty Limited (in liq) ("Company"), seek an order approving their remuneration as voluntary administrators of the Company for the period 30 September 2015 to 7 January 2016 in the sum $85,352.50 (initially expressed to be inclusive, but subsequently corrected to be exclusive, of GST) and approving their remuneration as liquidators of the Company during the period 7 January 2016 to 31 January 2018 in the sum of $132,912 (also initially expressed as inclusive of GST and corrected to be exclusive of GST).
In the course of oral submissions, Mr Golledge, who appeared for the Applicants, recognised that the Court's approval of the Applicants' remuneration is not strictly required, because creditors have already approved that remuneration, subject to a procedural issue in respect of one aspect of that approval. The Applicants instead now seek a direction that they are justified in acting in accordance with the approvals already given by creditors of that remuneration. That direction deals with, in effect, any question as to their ability to rely on the approvals given that procedural issue.
The Applicants also seek, possibly for more abundant caution, a direction that they would be justified in paying the approved remuneration from the funds presently retained by them either in their capacity as liquidators of the Company or funds held as receivers and managers of the trust of which the Company is trustee, the ECE Unit Trust. That second direction is also for more abundant caution, since the fact that they would be justified in that course emerges clearly from the authorities.
The Applicants rely on the affidavit of Mr Thorn dated 10 February 2016, his further affidavit dated 19 February 2016, which referred, inter alia, to the process of sale of the business previously conducted by the Company, and his further affidavit dated 26 October 2018, which referred to issues which had arisen, particularly in respect of the liquidation, to significant complexities in the process of sale of the business, and to steps which had been taken to recover unfair preferences in the liquidation. That affidavit also provided a detailed summary of receipts and payments in the liquidation and outlined the basis on which remuneration was claimed. Two further affidavits of the Applicants' solicitor, Ms Yap, dated 19 and 22 November 2018 dealt with service of the application.
Turning now to the background to the application, Mr Golledge points out that the Applicants were appointed by the Court as receivers and managers of two trusts, the EMA Consulting Unit Trust and the ECE Unit Trust on 22 February 2016, and have realised trust assets on that basis. Mr Golledge points out that, as I have noted, the remuneration claimed has already been approved by creditors, subject to the possible procedural anomaly in respect of the approval obtained for the period from 7 January 2016, which was initially directed to approval of remuneration from that date to the completion of the winding up, but has ultimately been applied to remuneration for the period to 15 March 2016, with a further approval obtained for remuneration after that date.
[3]
Notice to creditors
Mr Golledge points out that notice of the application was given to the creditors by circular and creditors were invited to contact the Applicants to obtain a full copy of the supporting affidavit, and that process did not strictly comply with the requirements for service under rr 9.2 and 9.4 of the Supreme Court (Corporations) Rules 1999 (NSW). Mr Golledge submits, and I accept, that the Court should dispense with the strict application of those rules to the extent necessary. It seems to me that that course is properly taken where, as I have noted, this is not strictly an application for approval of remuneration, which creditors have already given, but instead an application for a direction that the Applicants may act on that approval and where, in any event, it is unlikely that creditors would practically seek to appear to oppose remuneration which they have already approved.
[4]
Approval of remuneration
Mr Golledge refers to the case law that has considered the principles that should be applied when a Court is fixing an insolvency practitioner's remuneration. That case law, including the decision of the Full Court of the Federal Court in Australian Securities and Investments Commission v Templeton (2015) 108 ACSR 545, has emphasised the importance of proportionality, and the Court of Appeal in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 has in turn referred to the steps which should be taken by a Court in considering whether remuneration is reasonable, and to the possibility that time-based charges should be permitted, where no question of lack of proportionality of those charges arises. I have in turn reviewed the relevant authorities in Re Sakr Nominees Pty Limited [2017] NSWSC 668 at [23]-[25], where the liquidator's approval of remuneration in that case was considered after the Court of Appeal's decision.
Mr Golledge refers, by reference to the affidavit evidence, to the approvals which were already given for remuneration by creditors. Mr Golledge points out that the total remuneration claimed across the administration and the liquidation is approximately $218,000, in circumstances that the Applicants, as voluntary administrators and liquidators of the Company, and receivers of the trusts, have realised, by sale of assets and by preference recoveries, over $2.4 million in the course of the administration, liquidation and receivership of the trusts. It is implicit in creditors' approval of the remuneration that they were satisfied of the proportionality of the remuneration to the extent of those recoveries, and of the circumstances in which that remuneration was increased, given complexities in the sale process. While the Court will have regard to the proportionality of remuneration to asset recoveries, as I noted in dealing with the authorities above, it seems to me that the evidence does not raise any concern as to proportionality given those figures.
Here, as I noted above, no question arises of the Court itself approving the Applicants' remuneration, where creditors have already done so. There is, however, no reason, by reference to those principles, to doubt that the Applicants should be entitled to rely on that approval. I am also satisfied that the "anomaly" to which Mr Golledge refers, namely that the creditor approval for remuneration of $50,000 given in January 2016 was initially intended to cover work until the conclusion of the winding up, but was ultimately treated, both by the Applicants and by creditors at their further meeting, as covering work only until mid-March 2016, and a further approval was given for work after that date, does not affect the ability of the Applicants to rely on those approvals. It is apparent that the relevant matters were disclosed to creditors, who had regard to them in approving the further remuneration that was sought at the last of the creditors' meetings.
[5]
Payment of remuneration from trust funds
Mr Golledge refers to a preliminary issue whether the Applicants should be permitted to recover their remuneration and expenses from the trust assets. It seems to me that the Applicants are entitled to do so having regard to the authorities surveyed by Brereton J in Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270; (2014) 32 ACLC 14-052 at [13], to which Mr Golledge refers. It is well-established, as Brereton J noted, that liquidators are generally entitled to be paid their costs and expenses, both for administering trust assets and for general liquidation work, out of trust assets where a company is trustee of a trading trust and has no other activities. The evidence here indicates that the Company carried on business only as trustee of the relevant trusts and, in these circumstances, the Applicants' work as voluntary administrators and liquidators of the Company was necessarily directed to the administration of the trust assets, and could only be funded from trust assets.
[6]
Orders
For these reasons, I make the following directions and orders:
Direct that the Applicants would be justified in relying on creditor approval previously given for their remuneration as voluntary administrators of the Second Plaintiff during the period 30 September 2015 to 7 January 2016 in the sum of $85,352.50 exclusive of GST, and as liquidators during the period 7 January 2016 to 31 January 2018 in the sum of $132,912 exclusive of GST.
Direct that the Applicants would be justified in paying the approved remuneration from the funds presently retained by them either in their capacity as liquidators of the Second Plaintiff or receivers and managers of the ECE Trust.
Dispense with the application of rules 9.2 and 9.4 of the Supreme Court (Corporations) Rules to the extent necessary.
The costs of this application be costs of the winding up of the Second Plaintiff and the receivership of the ECE Trust.
Stand over paragraphs 3 and 5 - 6 of the Interlocutory Process filed 30 October 2018 to Corporations Motions List at 9.45am on 18 February 2019.
Exhibits to be returned.
[7]
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Decision last updated: 23 December 2018