HER HONOUR: This is an application by interlocutory process filed on 30 June 2021 by the liquidators of Double Bay Property Management Pty Limited (in liq) (the Company) who are also the receivers and managers of the property, assets and undertakings of the Property Management Unit Trust (formerly known as the LSBB (Property Management) Unit Trust) (the Trust).
The applicants are seeking orders approving their remuneration both with respect to the receivership of the trust assets and the activities concerning the winding up of the Company, and permitting the remuneration to be paid from the assets of the Trust, providing for payment of the trust assets to priority employee creditors of the Company in its capacity as trustee of the Trust, and orders for the discharge and release of the applicants in their capacity as receivers and managers of the assets and undertakings of the Trust, in circumstances where the trust property has been realised and the winding up of the Company is nearly at an end.
In support of the application, the applicants rely upon three affidavits of one of the joint and several liquidators, Mr Jonathan Philip Henry, those affidavits being affirmed by Mr Henry on 2 March 2020, 28 June 2021 and 15 July 2021 respectively, and certain documents that have been tendered as referred to in some of those affidavits. In summary, what is submitted is that the receivers' remuneration, which I will detail shortly, should be approved nunc pro tunc, and that further orders should be made permitting the receivers to draw their remuneration, and pay the remaining assets of the Trust to priority creditors in the winding up, and that the receivers should then be discharged and released.
The background to the application is that the Company was incorporated in about April 2007. Its sole shareholder was a company, Danatjes Pty Ltd (Danatjes), which was controlled by Mr Albert Sassoon. Mr Albert Sassoon is the sole director of the Company in liquidation. The Company carried on business as a real estate property manager of residential property in the Eastern Suburbs of Sydney (colloquially known as a rent-roll business). Its revenue was earned by charging a fee to landlords of property for the management of various properties.
In substance, the main asset and business of the Company was its rent roll. The Company was wound up voluntarily by resolution of its sole shareholder on 5 February 2020 and the applicants were appointed as liquidators of the Company. After their appointment as liquidator, it was discovered that the Company acted as trustee of a unit trust initially called the LSBB (Property Management) Unit Trust (i.e., the Trust). The Trust was established by a trust deed dated 21 June 2007 (the Trust Deed) and varied on 5 May 2014 by changing the name of the trustee to the Company's current name and the name of the trust to the Property Management Unit Trust. Copies of the Trust Deed and the Deed of Variation of Trust, respectively, have been tendered as Ex C and Ex D on the present application.
As at the time of the winding up of the Company, Danatjes was the sole unit holder of the Trust. A former unit holder was an entity by the name of Tytanya Holdings Pty Ltd (which is associated with Mr Sassoon's sister, Ms Tanya Sassoon).
By reference to clause 20.3(b)(v) of the Trust Deed, on the winding up of the Company, the Company was automatically removed from the office of trustee and the office of trustee thereby became vacant. The unit holders of the Trust are nominated as the appointor of the Trust with the power to appoint a new trustee and, therefore, Danatjes had the power to appoint a new trustee but the evidence is that at no stage had it taken any step to do so. It is noted for the applicants that, by reason of the vacation of the office of trustee of the Trust, the Company (on its winding up) became a bare trustee of the Trust and its assets (see Harker-Mortlock v Commonwealth Bank of Australia [2019] NSWCA 56 at [21] per Meagher JA (with whom Macfarlan and Brereton JJA agreed); Hughes, in the matter of Substar Holdings Pty Ltd (in liq) (2020) 49 ACSR 185; [2020] FCA 1863 at [26]-[27] per McKerracher J).
On 3 March 2020, an application was made (by originating process filed on that date) for orders under s 67 of the Supreme Court Act 1970 (NSW) for the appointment of receivers and managers to the property, assets and undertakings of the Trust. That application came before Gleeson JA, then sitting at first instance, and his Honour made orders (a copy of which are before me) appointing the applicants as receivers and managers, without security, of the property, assets and undertakings of the Trust of which the Company was trustee and granting them, in their capacity as receivers, all the powers of a liquidator in respect of property of a company under s 420(2) of the Corporations Act 2001 (Cth) (other than certain subsections) as if the references in s 420(2) to "the corporation" were a reference to the Trust (see Re Double Bay Property Management Pty Ltd (in liq) [2020] NSW 203).
Relevantly, for present purposes, order 6 of those orders provided that the receivers not make any distribution of the proceeds of the realisation of the assets beneficially held by the Trust to the creditors of DBPM or to the beneficiaries of the Trust without further order or direction of the Court.
It is noted by the applicants that the purpose of the appointment of the applicants as receivers was, amongst other things, to enable them to recover and realise assets held beneficially by the Trust in reliance on the Company's right of indemnity as a former trustee to satisfy debts incurred by the Company in its capacity as trustee of the Trust.
Mr Henry has deposed, in his affidavit affirmed 28 June 2021, to the work carried out by the applicants and their staff in the receivership. This may be summarised as follows: identifying the assets of the Company and the interaction with the Trust; making the application for their appointments as receivers; appointing an agent for the sale of the rent-roll business of the Company; approving marketing materials for the sale of the business, including an information memorandum; negotiating with prospective purchasers; liaising with a variety of people to continue the operation of the rent-roll business until its sale; conducting preliminary investigations as to the claims of creditors; preparing and lodging superannuation guarantee statements, calculating and confirming pre-appointment of employee entitlements, and issuing a notice of an intention to declare a dividend to those priority creditors; convening and holding meetings of creditors; and issuing statutory reports to creditors, the Australian Taxation Office, and the Australian Securities and Investments Commission.
Turning then to the first of the orders sought, which relates to the proposed remuneration of the applicants, it was noted at the outset in submissions that some of the assets have been distributed by way of remuneration following approval by creditors of work that was related solely to the liquidation of the Company and not related to the recovery of the assets beneficially held by the Trust. Mr Henry has deposed to the circumstances in which that occurred (see his affidavit affirmed 28 June 2021 at [69]ff).
Mr Henry has acknowledged that he and his joint liquidator were mistaken in drawing that remuneration without Court approval in circumstances where the remuneration was (albeit related to liquidation work) paid out of trust assets, and Mr Henry has apologised for the oversight and seeks retrospective approval from the Court with respect to that part of the remuneration.
As to the quantum of the proposed remuneration, what is proposed is a sum, effectively, over the course of the whole of the winding up and receivership, in the amount of $240,407. That amount encompasses a substantial discount which I will refer to in a moment.
It is said (and I accept) that this was a somewhat challenging receivership, noting that it was commenced at the early stages of the current COVID-19 pandemic. The Company went into liquidation in February last year. The receivership orders were made on 3 March 2020, and the sale process commenced through March to April, encompassing what was the peak period for the then first wave of the pandemic in New South Wales.
Mr Henry has deposed to the steps that were taken in relation to the sale of the Company's main asset; in particular, to the fact that discussions took place over the period of time following the appointment of himself and Ms Sozou as receivers with a particular party named Party A in his affidavit. Those negotiations were at an advanced stage (including documents having been drafted in relation to the sale of the business by the solicitors) when, on 17 March 2020, the proposed purchaser advised that he would no longer be proceeding with the purchase of the business. It is Mr Henry's belief that this related to the fact of the emergence of the pandemic and associated economic uncertainty. Thereafter, the liquidators and receivers' employee, Mr Goyal, began discussions with the person who ultimately purchased the rent roll through a corporate entity, Ms Anita Simons. Ms Simons is the mother of Mr Sassoon's ex-wife, Natalie, and a creditor of the Company.
There was an issue raised, to which Mr Henry deposes in his affidavit, as to a claim by the National Australia Bank which had registered an interest on the Personal Property Securities Register in relation to security claimed over the assets of the Company. However, the Company in fact had no assets in its own right and the security interest registration related only to the Company rather than by reference to the Company in its capacity as trustee of the trust. That led ultimately to a release being granted by National Australia Bank dated 7 April 2020 in relation to the claimed security interest under the Personal Property Securities Act 2009 (Cth) in respect of the Company.
The sale of the rent roll completed on 8 April 2020, and the net proceeds of sale for sale of the rent roll, in the sum of $431,200 inclusive of GST, was deposited into the trust account of the solicitors acting for the applicants. There were then steps taken in April 2020 for the transfer of ownership of the rent roll to Ms Simons or the entity which purchased the rent roll associated with Ms Simons. Following the sale of that asset, there is no further property or assets of the Trust to be realised.
On 16 April 2020, after application of payment of legal costs incurred by the receivers, the sum of $319,675.95 was received into the receivers' bank account. Mr Henry has deposed (from [53] of his affidavit affirmed 28 June 2020) to the work performed by his co-liquidator and receiver in relation to the realisation of the trust property, and dealing with creditors, and to the other statutory duties performed by himself and his co-liquidator and receiver. It was necessary for the rent-roll business to be carried on for a short period of time pending completion of the sale of the business in order to preserve that asset. The amount of remuneration claimed is proposed to be substantially discounted, a matter that is relevant when considering the principles of proportionality. In particular, it is noted that there are insufficient funds in the liquidation to provide for the total payment of the remuneration claim amount (see [59]-[66] of Mr Henry's affidavit affirmed 28 June 2020).
In order to preserve a return to priority creditors of 100 cents in the dollar (those priority creditors being the employees of the Company), what is proposed is that the fees of the applicants will be discounted by a further sum such that, in respect of the period from 23 April 2020 onwards, payment of the remuneration will be received out of the balance of funds available after distribution in full to the priority creditors. The amount calculated as payable to the priority creditors totals $44,583.18 (Mr Henry's affidavit affirmed 28 June 2020 at [58]). Further, it is proposed that there will be no charges for any time after July 2021 including for this application. I should note that the overall amount charged by McGrathNicol personnel in connection with the winding up of the Company and receivership of the trust property, assets and undertakings, on a time recorded basis, totals $304,316 (excluding GST).
I have been taken to schedules which show the level of seniority of the persons who have spent time on the respective work involved in the receivership and liquidation; and it is evident from those schedules which are contained in the respective remuneration approval reports that there has been appropriate consideration to the work being carried out at a level commensurate with the type of work and the small amount involved in the liquidation and receivership. A substantial amount of the work has been done by staff at a managerial level as opposed to the partner level.
[2]
Application for approval of remuneration
The principles in relation to approval of remuneration for Court appointed receivers and liquidators have been considered in various cases. Reference is made to those principles in the applicants' written submissions. At this point, it is sufficient simply to refer to the decision of the Court of Appeal in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 (Sakr).
As to the principles that are applicable, it is quite properly acknowledged by the applicants that proportionality is not the determinative factor in relation to this. Nevertheless, it is submitted that the summary of time spent establishes that the costs have been proportionate in the circumstances.
Reference is made to the fact that there was approval of remuneration, at least to the extent that a resolution without a meeting being held resulted in one creditor approving the remuneration on three occasions (albeit that this is not, and it is conceded it is not, a resounding endorsement of the remuneration). It is relevant that there has been no opposition by a creditor either to the passage of the resolutions or, having been given notice of this application, no appearance by any creditor raising issues on this application.
Insofar as the submissions in relation to approval of the remuneration are concerned, the applicants make four submissions in favour of approval of the amounts sought.
The first is that Mr Henry, who is an experienced insolvency practitioner, has deposed that the time reflects work that was necessary and required to be undertaken in respect of the receivership and the winding up of the Company, that the work was performed in an efficient manner and carried out by persons with the appropriate level of seniority whose charge-out rate was proportionate to the complexity of the work performed.
I have already referred to the summary of the remuneration which shows that the bulk of the work was carried out by staff members (directors, assistant managers and accountants) with more modest hourly rates compared to the rates of the applicants who are the partners and executive directors involved; and Mr Henry has deposed that the amount of remuneration and its calculation when viewed overall is, in his view, fair and reasonable having regard to the care, skill and responsibility required in order to perform the work. (I agree.)
Second, it is submitted (and I accept) that most of the work was undertaken in connection with the sale of the trust assets which led to a substantial realisation of assets in the receivership.
Third, as to matters of proportionality, it is noted that the applicants have already reduced the amount of remuneration sought from the total amount recorded on a time costing basis, that reduction being at least in the sum of $63,909, that they do not seek remuneration for work done by them and their staff for the period after 10 July 2020, and they will not pay themselves a part of the remuneration sought to be approved so that priority employee creditors can have their debts paid in full, notwithstanding that these payments would ordinarily rank after the remuneration of the applicants. Thus, it is submitted that, as a practical matter, the remuneration sought will involve a very substantial discount with an overall calculation on a time cost basis which would likely be in excess of $100,000. (Again, I agree.)
Fourth, that the Company's creditors and unit holders of the Trust have been served with notice of this application and none has indicated any opposition to the remuneration approved. I have referred already to the passage of the resolution without a meeting pursuant to s 75-40(4) and (5) of the Insolvency Practice Schedule (Corporations) (Corporations Act, Sch 2) and s 75-130 of the Insolvency Practice Rules (Corporations) 2016 (Cth) in this regard.
In relation to the fact that the applicants have already mistakenly drawn part of their remuneration in the sum of $49,238 excluding GST, it is submitted that no prejudice has been or will be occasioned to any creditor or other potentially interested party, and it is submitted that this may be remedied by the making of orders re-approving the remuneration claimed on a nunc pro tunc basis, that being the approach adopted by Rares J in Topp (liquidator), in the matter of Aidzan Pty Ltd (in liq) v Nazdia Pty Ltd [2020] FCA 1764.
On the question of the remuneration, I find that the remuneration sought is fair and reasonable having regard to the work that was necessary and required to be undertaken, considering the complexity of the task and the matters to which reference has been made in the submissions and in the evidence of Mr Henry. I am satisfied that it is appropriate to approve the proposed remuneration as it is in accordance with the principles articulated in Sakr.
[3]
Order of distribution to priority creditors
The second issue in this application is as to the order of distribution to priority creditors.
I have referred above to order 6 of the orders that were made by Gleeson JA in March 2020. As a distribution is now proposed to be made to the priority creditors, the applicants accept that an order from the Court is required. The applicants refer to Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 368 ALR 390; [2019] HCA 20 in which it was made clear that the statutory regime provided for by Div 6 of Pt 5.6 of the Corporations Act applies to the distribution of the assets of the company in its capacity as trustee (see also Rathner (liquidator), in the matter of Garrows Close Pty Ltd (in liq) [2021] FCA 505 at [30] per Beach J; Mohen (liquidator), in the matter of Willco Breads Pty Ltd (in liq) [2019] FCA 1539 at [22] per Banks-Smith J).
The applicants accept that priority is conferred on those creditors falling in the classes identified by s 556 of the Corporations Act, specifically the former employees of the Company with respect to their statutory entitlements pursuant to s 556(1)(e)-(h). Accordingly, a direction is sought that the receivers pay the assets of the winding up after the remuneration claim amount to the former employees of the Company in accordance with the priorities set out in ss 555-556 and 560 of the Corporations Act. I accept that it is in order so to do and I will make those orders.
[4]
Release of the receivers
The final issue raised on the present application is as to the release of the receivers. It is noted that a court appointed receiver may be discharged where the object of the appointment has been achieved (see, for example, Sprowles, in the matter of Triumph N Triumph Pty Ltd (in liq) (No 2) [2021] FCA 405 at [5] per Yates J). The applicants say that, as the receivership is shortly to conclude by the proposed distribution of the trust assets, it is appropriate that they be discharged once that occurs.
In this regard, the applicants refer to Hosking (liquidator), in the matter of Business Aptitude Pty Ltd (in liq) [2017] FCA 1417 at [8]-[9] per Foster J and to the general law principles in relation to the giving of releases to court appointed receivers typically at the conclusion of the receivership pending the passage of a short period of time to permit claims to be brought(see, for example, Official Assignee in Bankruptcy of the Property of James Adair Hanna v Hanna [2019] FCA 1934 at [6]-[7] per Gleeson J). I also note what was said by Dillan LJ in Inland Revenue Commissioners v Hoogstraten [1985] 1 QB 1077 at 1094:
…It has always been recognised that the court has power, by making an order for release and discharge, to protect its officer, whether a sequestrator or a receiver, from all liability for acts done in the course of his duties. As I have indicated earlier in this judgment, it would be wrong to exercise this power without first investigating or making provision for the investigation of claims of which the court has notice. But I do not see that the court is obliged to wait until the end of the limitation period before protecting the court's officer against a claim, if the claimant, having had ample opportunity to do so, neglects to prosecute the claim.
I have referred above to the mistaken drawing of a portion of remuneration by the applicants. Other than that, there is nothing to suggest that there has been any act or default that is likely to give rise to any liability to any creditor or beneficiary and no claim by any creditor or beneficiary has been foreshadowed. It is submitted that a release is appropriate in the circumstances where the receivers are now proposing to distribute the remaining assets of the Trust over which they have a lien. They will, therefore, have no assets left to use to defend themselves from any such claim in the unlikely event that one arises.
Accordingly, it is submitted that following the distribution of the remaining assets held by the receivers and their employees and agents, they should be released in respect of any liability that may have arisen during their appointment. The proposed orders have been drafted such that the release will not operate for at least six weeks from the date of the Court's orders. It is submitted that this will provide sufficient time for any creditor or beneficiary to bring any claim in the unlikely event that a creditor or beneficiary seeks to do so and will ensure that the release comes into effect simultaneously with the discharge of the receivers.
It is noted that this is what occurred in University of Western Australia v Gray (No 30) [2010] FCA 1063 and reference is also made to the decision of Yates J in Hutchins, in the matter of Ardenberg Pty Ltd (in liq) (Admins Apptd) (No 3) [2021] FCA 519 (Hutchins) at [14]-[15]). In Hutchins, his Honour concluded (at [16]) that it would be appropriate to grant the first plaintiffs the release that they seek and that the release should take effect on the date of their discharge as receivers and managers of the trust.
In the circumstances, I am satisfied that it is appropriate to make the order in relation to the discharge and release of the receivers that has been proposed.
[5]
Orders
For those reasons, I make the orders set out in the Short Minutes of Order, as follows:
1. The remuneration of the First Plaintiffs, Jonathan Philip Henry (Mr Henry) and Katherine Sozou (Ms Sozou), in their capacity as the receivers and managers (Receivers) of the property, assets and undertakings of the Property Management Unit Trust (formerly known as the LSBB (Property Management) Unit Trust) ABN 94 017 269 317 (Trust) and as liquidators of Double Bay Property Management Pty Ltd (In Liquidation) ACN 124 733 008 (the Company), be fixed:
1. for the period from 5 February 2020 to 22 April 2020, in the sum of $200,000.00, exclusive of GST; and
2. for the period from 23 April 2020 to the conclusion of the receivership, in the sum of $40,407.00, exclusive of GST, (together, the Remuneration).
1. The costs, expenses and Remuneration of Mr Henry and Ms Sozou, in their capacity as Receivers of the property, assets and undertakings of the Trust and as liquidators of the Company, be paid from the assets of the Trust nunc pro tunc.
2. The Receivers pay, from the remaining assets of the Trust after payment of their expenses and Remuneration, amounts to the admitted priority creditors of the Company in accordance with the priority regime established by sections 555, 556 and 560 of the Corporations Act 2001 (Cth).
3. By a date not less than six weeks after the date of these orders, Mr Henry and Ms Sozou file with the Court their final account as Receivers of the property, assets and undertakings of the Trust.
4. Upon the filing of the final account in accordance with paragraph 4 above, Mr Henry and Ms Sozou:
1. be discharged as Receivers of the property, assets and undertakings of the Trust; and
2. together with their employees and agents, be released from any liability whatsoever and however arising out of or in connection with their appointment as Receivers of the property, assets and undertakings of the Trust.
1. Liberty be granted to any person who claims to have an interest in the relief sought, to apply to the Court to vary or set aside these orders on three days' notice to the Plaintiffs and the Corporations List Judge, such application to be made by no later than three weeks from the date of these orders.
2. The Applicants, within 3 business days of these Orders, provide a copy of these Orders to:
1. the creditors of the Company;
2. the appointor and beneficiary of the Trust, Danatjes Pty Ltd; and
3. Tytanya Holdings Pty Ltd,
in the manner prescribed by order 9 of the Orders made by the Court on 3 March 2020.
[6]
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Decision last updated: 09 August 2021