Blackadder v McQuinn & Ors

Introduction 1 The applicants, Simon John Thorn and Bradley John Tonks, were appointed as provisional liquidators of the plaintiff, Kreab Gavin Anderson (Australia) Ltd, on 21 February 2017. 2 Before that time, the directors of the plaintiff had acted to appoint them as voluntary administrators of the plaintiff, and the creditors of the plaintiff had resolved that they be appointed as liquidators of the plaintiff. Both of these appointments were invalid, for the reasons I explained in Kreab Gavin Anderson (Australia) Ltd, in the matter of Kreab Gavin Anderson (Australia) Ltd [2017] FCA 300 at [3]-[11]. 3 In essence, as the plaintiff was a Pt 5.7 body, the provisions of Pt 5.3A of the Corporations Act 2001 (Cth) (the Act), dealing with the administration of a company's affairs, did not apply to it: Re Reef Cove Resort Ltd [2009] QSC 378 at [17]. Further, their appointment as joint and several liquidators of the plaintiff on a creditors' resolution was not possible in light of s 583(b) of the Act: Peninsula Group Ltd v Kintsu Co Ltd (1998) 44 NSWLR 534. 4 On 24 March 2017, the applicants were appointed as liquidators of the plaintiff: Kreab Gavin Anderson (Australia) Ltd, in the matter of Kreab Gavin Anderson (Australia) Ltd (No 2) [2017] FCA 313. 5 The applicants now apply for approval of their remuneration as provisional liquidators from 21 February 2017 to 24 March 2017. They also seek remuneration as voluntary administrators and liquidators of the plaintiff from 6 December 2016 to 21 February 2017, even though those appointments were invalid. 6 In their amended interlocutory process filed on 30 November 2017, the applicants seek the latter relief as an incident of the inherent power of the Court. However, in the course of submissions it became clear that the applicants sought that relief on general law principles to which I will make further reference. 7 The total remuneration sought by the applicants is $111,780 plus GST. Of that amount, $96,517.50 is sought in respect of them purporting to act as voluntary administrators, and $13,567.50 is sought in respect of them purporting to act as liquidators in a voluntary winding up. It will be appreciated, therefore, that the entitlement of the applicants to this remuneration is of considerable significance to them. 8 The following affidavits were read in support of their application for remuneration: Simon John Thorn, sworn 30 June 2017; Simon John Thorn, sworn 22 August 2017; Katelyn Maree Yates, sworn 22 August 2017; and Katelyn Maree Yates, sworn 5 September 2017.

The evidence 9 Following their purported appointment as administrators, the applicants took control of the plaintiff's business from 7 December 2016. They reviewed the books and records of the business and formed the view that sufficient information was available to enable them to correctly record and explain the plaintiff's financial position and to enable true and fair financial statements to be prepared. 10 The applicants attempted to sell the plaintiff's business as a going concern. They received expressions of interest from six parties, two of whom entered into non-disclosure agreements and paid a deposit for access to reports from the plaintiff's records. However, ultimately, no offer to acquire the business was made. The applicants also endeavoured to promote a management buyout, but they were unsuccessful in that endeavour. 11 The applicants continued to trade the plaintiff's business until 23 December 2016. This decision was made with a view to maximising the plaintiff's value in work in progress and debtors. The decision to cease operating the business was based on a lack of forward work, which meant that the plaintiff was likely to trade unprofitably in January 2017 and beyond. As the applicants had been unable to secure a sale of the business, any future trading would deplete the plaintiff's assets for no benefit. 12 The applicants carried out preliminary investigations into the affairs of the plaintiff and provided a high level summary of those preliminary investigations in their report to creditors. They formed the view that the plaintiff may have traded whilst insolvent for a period, and that there were a number of antecedent transactions that would need to be investigated by liquidators. 13 The applicants prepared and sent reports to creditors on 8 December 2016 and 6 January 2017. Meetings of creditors were held on 16 December 2016 and 18 January 2017. At the second meeting of creditors, it was resolved that the applicants be appointed as joint and several liquidators of the plaintiff. Their remuneration as joint and several administrators until 31 December 2016 was approved in the sum of $72,722.50, exclusive of GST. Their further remuneration as administrators was approved in an amount up to $40,000. Their future remuneration as joint and several liquidators, up to completion of the liquidation, was approved in an amount up to $50,000. 14 At the time the remuneration resolutions were passed, the creditors had been given a remuneration request approval report and supporting documents. 15 I note that the remuneration approved by the creditors exceeds the amount currently claimed. 16 I am satisfied on the evidence that, from 6 December 2016 until 21 February 2017, the applicants proceeded on the basis that they had been appointed validly as, firstly, administrators and, subsequently, as liquidators of the plaintiff in a creditors' voluntary winding up. 17 In his affidavit sworn on 30 June 2017, Mr Thorn summarised the work carried out by the applicants in both capacities. Mr Thorn has also summarised the work carried out by the applicants as provisional liquidators. His affidavit includes time records itemising the work done, the persons doing the work, the hours involved and the value assigned to the work. 18 I record the following additional matters. 19 The applicants have given notice of their present application to the plaintiff's six largest creditors and its only shareholder, Kreab Worldwide A.B.: see r 9.3(3) of the Federal Court (Corporations) Rules 2000 (Cth). No notice of objection has been given: r 9.3(4). Affidavits under r 9.3(5) have been filed. The requirements of r 9.3(7) have been met. The notice to the creditors and the shareholder included notice of the remuneration sought by the applicants when purporting to act as administrators and liquidators in a creditors' voluntary winding up. 20 Previously, the Australian Securities and Investments Commission (ASIC) had been given notice of the plaintiff's application to appoint the applicants as liquidators. At that time, ASIC informed the plaintiff's solicitors that it did not propose to intervene in the proceeding.

Legal principles 21 In Allison Johnson & Foster Limited; Ex part Birkenshaw [1904] 2 K.B. 327 (Birkenshaw), it was held that a liquidator who had been invalidly appointed in a voluntary winding up was not entitled to remuneration, on the basis of a quantum meruit, for services rendered as a liquidator. However, in delivering the judgment of the court, Kennedy J said at 330-331: … But we think that if and so far as the appellant can prove that his labours have been beneficial to the company, and have been accepted by the company for business purposes of the company unconnected with liquidation, or have been utilized with full knowledge of the facts by the official receiver and liquidator of the company in the winding-up which has been carried on under the Court's order, it is consistent alike with law and equity for us to hold that there has been such an acceptance of them upon an implied promise of reward (a promise of reward to be implied from making use of materials prepared by him for which they must have paid someone else if they did not use what he had done) as entitles Mr. Birkenshaw to this extent to claim to be remunerated on the basis of a quantum meruit…. 22 Although some aspects of the reasoning in that case were questioned by Greer LJ in Craven-Ellis v Canons Ltd [1936] 2 K.B. 403 (Craven-Ellis) at 410, his Lordship did not consider Birkenshaw to be wrong: see at 412; see also Greene LJ at 415. 23 In Re Kyra Nominees Pty Ltd [1981] WAR 120, Pidgeon AJ saw Birkenshaw and Craven-Ellis as correctly stating the law in respect of an invalidly appointed liquidator's claim for remuneration. 24 In Re Wood and Martin (Bricklaying Contractors) Ltd [1971] W.L.R. 293 (Wood and Martin), Megarry J saw Birkenshaw as "not wholly destroying" the claim of an invalidly appointed liquidator to remuneration on the basis of a quantum meruit. He saw such a claim: …in effect removed…one degree further away, in that whether or not there would be such a claim depended on whether in the event a liquidator is properly appointed who makes use of the work that the applicant had done. 25 In Monks v Poynice Pty Ltd (1987) 8 NSWLR 662 (Monks), Young J assimilated Birkenshaw, Craven-Ellis and Kyra into the principle that remuneration should be paid for services provided by an invalidly appointed company officer (his Honour included an invalidly appointed receiver under a charge): …where the service conferred incontrovertible benefit on the defendant and it would be unconscionable for the defendant to keep the benefit of the service without paying a reasonable sum therefor. 26 His Honour continued: … This is really the same sort of principle as was dealt with by Deane J in Muschinski v Dodds (1985) 60 ALJR 52 at 67; 62 ALR 429 at 455. Whilst it may be that some of the learned judges who decided the cases would be surprised to know that their decisions were included by me in this fourth category, it would seem to me that some of the cases that are cited in the text books fall into it. These would include Re Allison Johnson & Foster Ltd; Ex parte Birkenshaw [1904] 2 KB 327, where a liquidator was invalidly appointed on a voluntary winding up, but was permitted in a compulsory winding up to prove as a creditor for work done and expenses incurred by him while purporting to act as liquidator. This decision was approved in similar circumstances in Western Australia in Re Kyra Nominees Pty Ltd (1980) 5 ACLR 60 at 65. Again the classic case of Craven-Ellis v Canons Ltd [1936] 2 KB 403 may also put into this category, even though it is quite obvious that the learned judges who decided that case may not themselves have so categorised it. … Whatever the appropriate classification of the Craven-Ellis case is, it has been accepted as laying down the correct result, a result which is summed-up in the words of Professor O'Donovan in his Company Receivers and Managers (1981) at 165 as saying that there where, notwithstanding that there has been no acceptance of the service, a company is benefited incontrovertibly by the acts of the claimant, then the claimant has a right against the company to be remunerated. 27 His Honour also recognised other bases, at general law, where liability could be fixed upon a person to pay a reasonable sum for services provided. Apart from quantum meruit, and the circumstance referred to at [25] above, his Honour identified two further circumstances: where the party benefited accepts or acquiesces in the provision of the service under circumstances where it must have known that the service is not being rendered gratuitously; and where the service provided is necessary to be carried out for the protection of the defendant's personal property. 28 In Sutherland v Take Seven Group Pty Ltd [1998] NSWSC 538 (Sutherland), Young J, when dealing with the claim of an invalidly appointed administrator for remuneration, said: …there is a line of authority which commences with Craven-Ellis v Canons Ltd [1936] 2 KB 403, the most recent example of which is Re Pearl Maintenance Services Ltd [1995] 1 BCLC 449, 498, that a person who is invalidly appointed as an officer, including a receiver of a corporation, may recover the reasonable remuneration for work done which is at least of incontrovertible benefit to the company… 29 In Sherred & Anor v McDonald & Ors [2005] QSC 153 (Sherred), Moynihan J at [22] accepted Sutherland as correctly stating the proposition that: …an invalidly appointed administrator could recover reasonable remuneration done for work which was of an "at least" incontrovertible benefit to the company… 30 In Re The Dominion Insurance Company of Australia Ltd [2013] NSWSC 898; (2013) 276 FLR 338, Brereton J (at [43]) noted authority to the effect that: …where the appointment of a liquidator is defective, so that the liquidator is not entitled to remuneration on the normal basis, there is no entitlement to a quantum meruit, since there can be no implied contract to pay for work performed as a result of an invalid request - although where the work of the invalidly appointed liquidator has been of incontrovertible benefit a restitutionary claim may be available… 31 It was unnecessary for his Honour to consider remuneration on such a basis in the case before him because he was satisfied that the appointment in question was valid. 32 In Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244, Black J at [88] observed: …It is well-established that an administrator who has not been validly appointed may be entitled to remuneration on a quantum meruit basis: Sutherland v Take Seven Group Pty Ltd (1998) 29 ACSR 201 at 204; Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) WAR 53; (2009) 71 ACSR 250… 33 In Correa and Another v Whittingham (No 3) [2012] NSWSC 526 at [224], Black J advanced the same observation. In Re Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 2037 (Keneally), his Honour noted (at [2]) the same possibility as an alternative to a claim for remuneration based on work done that was of incontrovertible benefit to the company. 34 In Blackadder v McQuinn & Ors (No. 2) [2017] NTSC 57, Hiley J held (at [38]) that an invalidly appointed administrator is entitled to make a claim for remuneration on a quantum meruit basis. In so holding, his Honour cited Keneally with approval. His Honour also accepted that, in such circumstances, remuneration could also be claimed on the basis that the work done was of incontrovertible benefit to the company. In so holding, his Honour cited Monks with approval (at [43]).

Consideration 35 The above survey of cases suggests that there has been no uniform application of principle when considering whether and in what circumstances an invalidly appointed administrator or an invalidly appointed liquidator in a voluntary winding up can claim remuneration for the work that he or she has performed for the company in question. 36 The balance of authority seems to favour the proposition enunciated in Monks that where the services provided have conferred incontrovertible benefit on the company, and it would be unconscionable for the company to retain the benefit of the services without paying reasonable remuneration therefor, then reasonable remuneration should be paid. 37 I propose to apply that principle in the present case. In doing so, I accept that, given the circumstances of the applicants' respective appointments as administrators, and as liquidators in a voluntary winding up, it would be unconscionable for the company to retain the benefit of the services provided by them without paying reasonable remuneration therefor, where the work performed has conferred incontrovertible benefit on the company. It was work they were, in fact, asked to perform and no reasonable person could hold the view that this work was to go unremunerated. 38 This then prompts the question whether all the services provided by the applicants were of incontrovertible benefit to the plaintiff. As Black J pointed out in Keneally at [6], it does not follow that all the work that would ordinarily be done in, say, an administration is work that would be of incontrovertible benefit to the relevant company. The same point is probably reflected in the court's qualification in Birkenshaw quoted at [21] above and in Megarry J's observation in Wood and Martin quoted at [24] above. Indeed, in Monks, Young J certainly considered Birkenshaw to be a reflection of the principle he enunciated. 39 My review of the applicants' time records indicates to me that save, possibly, for some trifling matters, the work performed by the applicants as purported administrators was, overall, of incontrovertible benefit to the company. 40 I am of the same view in relation to the work performed by the applicants as purported liquidators in a voluntary winding up. Indeed, it is difficult to escape the conclusion that the work done in that regard is work that the applicants subsequently made use of when acting as court-appointed provisional liquidators and, subsequently, liquidators. 41 I am satisfied that the applicants should be allowed reasonable remuneration for the work they have performed in each capacity. I propose to make a declaration to that effect and then refer the matter to the New South Wales District Registrar of the Court (the District Registrar) pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) to report on the amount that should be allowed as reasonable remuneration. 42 At the same time, I will exercise the power under r 16.1(1) of the Federal Court (Corporations) Rules 2000 (Cth) and direct that the applicants' remuneration as provisional liquidators of the plaintiff be determined by the District Registrar.

Disposition 43 Orders will be made accordingly. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.