Mr Christopher Darren and Mr Aaron Lucan ("Receivers"), in their capacity as receivers of Metal Storm (in liquidation)(receivers appointed) ("Company"), seek orders that they be allowed specified remuneration in respect of their work done as Court appointed receivers, in respect of the realisation of certain assets of the Company.
The Court previously delivered judgment on 21 July 2015 ("Judgment"), approving a sale of the assets following a sale process undertaken by Messrs Darren and Lucan in their capacity as Receivers. I will return to the summary in the Judgment of the work that had been undertaken by the Receivers below. The application for approval of the remuneration of Messrs Darren and Lucan is consented to by the trustee for note holders in respect of the company, Equity Trustees Wealth Services Limited ("Equity Trustees") and by the liquidator to the Company. It is not actively opposed by another party to the proceedings, the Australian Special Opportunity Fund ("ASOF"), although ASOF's solicitors have written to the trustee for noteholders and the liquidator indicating that it contends that they ought to be satisfied of the appropriateness of the remuneration sought. The Court would, in any event, need to be satisfied on evidence as to the appropriateness of the remuneration before allowing it.
I should say something further as to the approach which has been adopted in dealing with this application. It would, of course, be common for an application by receivers for remuneration to be referred to a Registrar. In this case that course has not been adopted for reasons including that it appears that the amount realised on sale of the Company's assets is not likely, for reasons that I will note below, to be sufficient to meet the amount of the remuneration claimed by the Receivers on any view, and that the Court has already had cause to consider the detail of the work done by the administrator in approving the sale of those assets.
In Ide v Ide [2004] NSWSC 751; (2004) 50 ACSR 324, to which Mr Karam who appears for the Receivers draws attention, Young CJ in Eq referred to the traditional process for the taking of accounts in respect of an assessment of a receiver's costs, but noted the possibility that the Court would be justified in bypassing that procedure, having regard to the benefits of and reasons behind the standard procedure, on the one hand, and on the other, the benefits associated with taking a more holistic approach by making a determination in a less formal way. It seems to me that, in the present case, given the significant degree of consensus between the parties as to the remuneration claimed, the sophistication of the parties in the proceedings and the fact that the Receivers are on any view likely to suffer a shortfall in the amount of remuneration they will receive from the sale proceeds of the assets, there is strong reason to approach the question of remuneration in a less formal way, to avoid the delay and the additional costs which would be incurred in a review by a Registrar. That approach seems to me to be consistent with s 56 of the Civil Procedure Act 2005 (NSW) and the just, quick and cheap resolution of the matters in dispute in the proceedings.
Mr Karam, who as I noted appears for the Receivers, has taken me through correspondence which led to the application today. By an email dated 17 September 2015 (Ex A1, p 1) the Receivers advised the parties of the likely proceeds of sale of the assets and other realisations in the receivership, and of the expenses that had been incurred in the sale process and the Receivers' remuneration leading to an anticipated shortfall in the sale process. By a remuneration report dated 1 October 2015, the Receivers set out their claim for remuneration into segments in a manner consistent with the claim for remuneration now made, and also set out both the rates which were charged for the relevant work and the nature of the work which had been done in substantial detail.
I pause there to note that the Court has available other material beyond that which is set out in the remuneration report in order to indicate the work which had been done by the Receivers. The Receivers read the affidavits of Mr Lucan dated 26 June 2015, 6 July 2015 and 21 July 2015 in this application which had also been read before me on the application to approve the sale of the relevant assets, and tendered the exhibit to Mr Lucan's affidavit read on that application. I summarised the evidence of Mr Lucan in that regard in the Judgment delivered in respect of the approval of the sale process. I there noted that Mr Lucan's affidavits set out the steps taken to identify the assets that were sold and to take steps to ensure that those assets were properly dealt with, and that the Receivers had adopted a sale process which had regard to the unusual character of the assets, and the particular market which was likely to be relevant, including taking steps to adopt a process which was intended both to maximise the proceeds of the sale process, and ensure an alternative position would be available if the highest bidder was unable to obtain regulatory approval to complete the sale. The sale process was not a straightforward one because the assets involved were, in significant part, complex weapons technology which was subject to a significant degree of regulation. I also noted that the process adopted by the Receivers appeared to have been a prudent and careful one and one that was likely to maximise the sale proceeds obtained in respect of assets that had an unusual character and that there was a significant level of complexity involved in undertaking the sale process.
I also there noted that I could give weight to the fact that the trustee for the noteholders, although it had not had visibility of all steps involved in the sale process, had acknowledged that a proper sale process had been adopted and reasonable steps had been taken to sell the property and that the liquidator also had not raised concerns as to the adequacy of the sale process. The review of the sale process undertaken at that time supports a view that, in principle, the Receivers ought to be remunerated for work reasonably undertaken in respect of a process that the Court had already concluded was adequate in respect of assets that involved particular complexity. I will return to that matter below.
After the Receivers have provided detailed information as to the categories of work they have done and the time and costs involved in them to the relevant parties in the remuneration report, the Court made orders which provided for a process by which the parties would indicate whether they consented to the Receivers' remuneration and to an amount held by the company being released to the Receivers and, if not, identify the basis for any objection.
By letter dated 12 October 2015 the solicitors for ASOF indicated that ASOF considered the Receivers' remuneration and disbursements were disproportionately high by reference to the value of the assets sold as set out in the remuneration report. With respect, it seems to me that that proposition does not have substantial weight. It is not possible to assess the question of whether the Receivers' remuneration is reasonable by asking the question, with hindsight, what the market is prepared to pay for complex weapons technology. It is plainly logically possible that a complex sale process will be required to realise assets of a particular character in circumstances that those assets will ultimately realise less than the costs of their realisation. That, no doubt, is a disappointment to all of those involved in the process; but it cannot be assumed that the Receivers, acting carefully and prudently prior to undertaking a sale process for unique assets will be able to manage that process in a manner that involves reducing the cost, in the light of complexity of the assets and uncertainty of the market, to be less than the sale price received for the assets.
Ultimately, as I have noted above, Equity Trustees and the liquidator have indicated that they consent to the amount of the Receivers' costs, and ASOF has not itself pursued an objection to those costs while it has indicated that it expects Equity Trustees and the liquidators to be satisfied of those matters.
Mr Karam draws attention to the relevant principles. They include the fact that Court appointed receivers are entitled to remuneration, and indeed their entitlement to remuneration is a necessary feature of the Court's ability to appoint insolvency practitioners to such a position. Mr Karam notes authority that Court appointed receivers are required to have their remuneration approved by the Court before they are permitted to draw payment. There are many examples of cases where that has occurred including, for example, Re Application of Crouch [2005] NSWSC 1122 and Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd (No 2) [2015] FCA 809. The latter case is useful because it also involved a case where a significant amount of work had to be done by receivers to realise value in shares of which they had been appointed receivers where they had experienced considerable difficulty in selling those shares. In that case, Foster J approved the receivers' remuneration, observing that he was satisfied they had approached the task entrusted to them with skill and competence and had set out about realising the assets for the benefit of the relevant creditors.
In this case, there is substantial evidence before the Court as to the work that has been done by the Receivers. While their costs have ultimately exceeded the value that has been realised for the assets, that seems to me explicable by the complex character of the assets sold, the fact that a number of those assets were located in the United States which plainly increased the costs of the sale process, and the fact that ultimately the market for those assets was, perhaps, prepared to pay less than might initially have been hoped for them. There is evidence as to the rates which have been charged by the Receivers, and there is no reason to think that those rates are out of market, or inappropriate given the complexity of the work undertaken. Two sophisticated parties, the trustee for noteholders and the liquidator, each of whom have a proper interest in the matter, consent to order for the Receivers' remuneration. ASOF, although it has not consented to that order, ultimately has not sought actively to oppose the making of that order. In the event, the order for remuneration will leave the Receivers out of pocket for the costs of a significant amount of the work that they have done.
In these circumstances, I am satisfied that an order should be made approving the remuneration sought by the Receivers in the amounts specified and ordering that the amount currently held by the Company be released to them to meet their remuneration and expenses, as specified in the proposed orders. Accordingly, I now make orders 2 and 3 of the orders contained in the short minutes of order initialled by me and placed in the file. I also order that the copy of affidavits of Mr Lucan and the exhibits be returned.
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Decision last updated: 17 November 2015