Judgment (74 paragraphs)

[1]

Re Reiter Brothers Exploratory Drilling Pty Ltd; Ex Parte Andrew Charles Robert Lee [1994] TASSC 42; (1994) 12 ACLC 430 (21 April 1994)

[2]

RE REITER BROTHERS EXPLORATORY DRILLING PTY LTD; EX PARTE ANDREW CHARLES

[3]

[1994] TASSC 42; (1994) 12 ACLC 430

[4]

Corporations - Companies - Winding up - Provisional liquidator - Remuneration - Discretion of court to fix remuneration - Relevant considerations - Unnecessary work - Unauthorised work - Degree of responsibility - Whether provisional liquidator may apply to wind up company. Corporations Law, s473(2). Re Carapark Industries Pty Ltd (in liq) (1967) 1 NSWR 337; Re The Trustees Executors and Agency Company Limited (recs and mgrs appointed) (1985) 3 ACLC 475, followed. Day v Mount [1984] FCA 96; (1984) 53 ALR 468; Re Fine Food Distributors Pty Ltd; Ex parte Whitehouse (1992) 9 ACSR 599, considered. Zempilas v JN Taylor Holdings Ltd (No5) (1991) 5 ACSR 22, doubted.

[5]

and Drake

Counsel for respondent: J E Frankcom

Solicitors for respondent: Butler McIntyre and Butler

[6]

Applicant entitled to receive remuneration in the sum of $27,500 in respect of acting as provisional liquidator of the Company.

[7]

ZEEMAN J This is an application by Andrew Charles Robert Lee, the former provisional liquidator of Reiter Brothers Exploratory Drilling Pty Ltd ("the Company"), made pursuant to the Corporations Law ("the Law"), s473(2) that his remuneration as provisional liquidator be determined. The amount claimed by way of remuneration is $56,871.60.

[8]

2. On the face of it, and having regard to the matters deposed to in the affidavit of Mr Timothy Bayley which was relied upon by the Company, the amount claimed is very high. Mr Bayley is a chartered accountant and official liquidator who practises in Hobart. I accept Mr Bayley's evidence. In particular he deposed to the following matters:

[9]

"5 The Company was a modest one having one drilling contract

which was terminated upon the appointment of the provisional

liquidator. It has assets of plant and equipment valued at

$149,935.00 as a going concern and $42,880.00 at auction. It

appears it was the registered owner of four pieces of land

valued at $56,250.00. The Directors report as to affairs

discloses the Company's excess of assets over liabilities in

the sum of $89,098.00. In a period of approximately 5 1/2

months of the provisional liquidation the Company accounts

show seven receipts of income and seven payments of cheques.

It is extraordinary in the circumstances of the nature of the

company's business, its assets and liabilities, that some 15

individuals should be involved in the administration.

Further, it is also extraordinary that in the circumstances

that the provisional liquidator should spend some 96 hours

and Garity Hurd some 183 hours in the administration."

[10]

3. The Company has opposed the making of an order determining the applicant's remuneration in the amount sought and has submitted that it is excessive. The Company also has submitted that some of the remuneration sought relates to the performance by the applicant of tasks in respect of which he is not entitled to any remuneration and in particular that he should not be allowed any remuneration for work done by the firm of Garity Hurd and Partners Pty Ltd.

[11]

4. By an originating application filed on 18 February 1993 Werner John Reiter and Elaine Joy Reiter sought a declaration pursuant to the Law, s260(1)(a) that the affairs of the Company were being conducted in a manner that was oppressive or unfairly prejudicial to or unfairly discriminatory against members or in a manner contrary to the interests of the members as a whole. The application also sought an order that the Company be wound up. The Company and Markus Heinrich Reiter were named as the respondents to the application.

[12]

5. At the time that the application was filed the Company had a paid-up capital of $20 divided into 20 fully paid shares of $1 each. Werner John Reiter held 10 of those shares. The other ten shares were held by Markus Reiter. They are brothers and were the only two directors of the Company. The affidavit filed in support of the originating application disclosed that the Company effectively had been conducted as if it were a partnership between the directors and that the directors were deadlocked as to the future operation of the Company. The affidavit indicated that the directors did not speak to one another and that there had been physical violence between them. There was some suggestion that Markus Reiter had preferred his own interests to those of the Company. At the time of the filing of the originating application the Company was solvent. It has remained solvent.

[13]

6. At the same time as the originating application was filed, the applicants therein filed an interlocutory application seeking inter alia an order that the present applicant be appointed provisional liquidator of the Company. That application came before Cox J who, on 22 February 1993, ordered that an official liquidator be appointed provisionally under the Law, s472(2), that the applicant be appointed as provisional liquidator, that he have all the powers contained in the Law, s477(2)(a)-(k) and s477(3) and that he take possession of all the property to which the Company was or appeared to be entitled. On 9 August 1993 the originating application was dismissed and it followed that the appointment of the applicant as provisional liquidator thereupon terminated (see Re Laverton Nickel NL (1978) 3 ACLR 945).

[14]

7. As the Company has submitted that the applicant ought not to be remunerated for some of the work done by him on the basis that it was outside the scope of what may properly be done by a provisional liquidator it is necessary to say something about the nature of the office of provisional liquidator. The traditional principal function of a provisional liquidator is to take into his custody and control all the property of the company to which he is appointed with a view to protecting and preserving it, so that it is available for the ultimate benefit of those entitled to share in the available assets in the event of a winding up order being made. His role is to preserve the status quo. In recent times there has been a tendency to give to provisional liquidators extended powers. Cox J made a specific order granting extended powers to the applicant, although they were powers which, in any event, would have been conferred upon him by operation of the Rules of the Supreme Court, PtX, r57(1).

[15]

8. It does not follow that, armed with such extended powers, a provisional liquidator may act as though he were a liquidator appointed on the making of the winding up order. The extended powers ought to be seen as doing no more than conferring upon a provisional liquidator ample power to perform his principal duty of preserving the status quo. Although the applicant had conferred upon him extensive powers they were to be exercised so that he might effectively maintain the status quo. That was the view taken in Re Carapark Industries Pty Ltd (in liq) (1967) 1 NSWR 337 where Street J said, at 341:

[16]

"Although in terms a provisional liquidator appointed under s

231(2) by an order which contained no specific limitation or

restriction might appear to have authority to do such things

as are necessary for winding-up the affairs of the company

and distributing its assets, I am of the view that this power

and authority is not one which is properly available to a

provisional liquidator. There is some authority and there is

a well-settled course of practice as to the proper scope of a

provisional liquidator's functions. It is unnecessary to

refer to either the authorities or the course of practice,

apart from observing that a provisional liquidator's primary

duty is to preserve in existing status quo with the least

possible harm to all concerned so as to enable the Court to

decide after a proper and final hearing whether or not the

company should be wound up."

[17]

9. That accords with the view taken in other cases (see Re Codisco Pty Ltd (1974) ACLC 27,897; Re Stewden Nominees No4 Pty Ltd (1975) 1 ACLR 185; Re Lockyer Valley Fresh Foods Co-operative Association Ltd (1980) 5 ACLR 282; Re ML Industries Pty Ltd (1981) 5 ACLR 769; Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd (No4) (1984) 2 ACLC 582). Further authority for the same proposition may be found in other jurisdictions - In Re Dry Docks Corporation of London (1888) 39 Ch D 306 at 309 and Re Chateau Hotels Ltd (1977) 1 NZLR 381 at 382-3.

[18]

10. If a provisional liquidator does work which plainly falls outside the ambit of that which he is authorised to do then he ought not to be remunerated for doing such work, although he need not be concerned with the propriety of the making of the order by which he was appointed and the impropriety of the making of that order does not affect his entitlement to remuneration (see In re Joseph Phillips Ltd (1964) 1 WLR 369). A provisional liquidator is not entitled to be re-imbursed for expenses improperly incurred and that rule extends to his remuneration (Burns Philp Investment Pty Ltd v Dickens (No2) (1993) 10 ACSR 626 at 629). Such a rule applies because of the fiduciary duty which a provisional liquidator owes to the company to which he is appointed.

[19]

11. At all relevant times the applicant was a partner in a firm of chartered accountants, Felser Russell, practising in Sydney, where the applicant resides. Felser Russell was one of a number of independent accountancy firms, located in various cities in Australia and New Zealand, who associated themselves with one another under the name of Felser's Australasia Accountancy Group. One of those firms was Garity Hurd and Partners Pty Ltd practising in Hobart. I will refer to it as a firm and to its directors as partners although it is an incorporated body. The Group held itself out as being able to offer, inter alia, insolvency services which it offered under the name of the Felser's Insolvency Services Division. The applicant was principally involved in the work of this division. The arrangements applying within the group were such that if there was introduced to Garity Hurd insolvency work which required the appointment of an official liquidator, the consent of the applicant to being appointed would be sought and, in the event that he was appointed, he would perform the duties of his office although to a major extent work which normally the applicant might be expected to delegate to members of his staff would be done by the partners and staff of Garity Hurd. The arrangement was of mutual benefit. The applicant expected to receive appointments which otherwise would not have been offered to him. Garity Hurd expected to receive professional fees for the work done by it, being work which otherwise would not have been available to it. A term of the arrangement between the applicant's firm and Garity Hurd was that the former would receive one tenth of any remuneration received which related to the work done by Garity Hurd and that firm would receive the balance.

[20]

12. The Company had been a client of Garity Hurd. The second applicant in the originating proceedings (whose standing relied on her status as a beneficiary under the trusts upon which the first applicant, her husband, held his shares in the Company) had sought the advice of that firm in relation to the deadlock situation which had arisen in the Company. The applicant seems to have been involved, at least indirectly, in the advice which was given. The advice given was to the effect that an appropriate application ought to be made to the Court and that immediate application ought to be made for the appointment of a provisional liquidator. I infer that as part of that advice it was suggested that the applicant be nominated as provisional liquidator.

[21]

13. There are some unsatisfactory aspects attending the applicant's agreement to be put forward as the proposed provisional liquidator. It is of the essence of the office that a person appointed as such is entirely independent. The view has been taken that a person who has been involved in the provision of earlier relevant advice in circumstances such as the present ought not to be appointed (see Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224). Prior to being appointed the applicant had signed a consent of provisional liquidator which I assume was handed to Cox J. It is in the following terms:

[22]

"I, ANDREW CHARLES ROBERT LEE of 110 Hampden Road Hobart am

an Official Liquidator registered under section 1283 of the

Corporations Law or deemed to be registered as an Official

Liquidator under the Corporations Law.

If appointed by the Court, I consent to act as the

provisional liquidator of REITER BROTHERS EXPLORATORY

DRILLING PTY LTD ('the Company').

To the best of my knowledge, information and belief, neither

I nor any member or senior employee of my firm have had any

social or professional association with the Company or any of

its present or past officers and no conflict of interest

exists which would make it improper for me to act as

provisional liquidator of the Company."

[23]

14. The Court is entitled to complete frankness from any official liquidator who consents to his name being put forward for appointment as a provisional liquidator. By signing the form of consent the applicant fell short of what may be expected in two respects. The fact that the applicant practised and resided in Sydney might well have been a matter which would have affected the exercise of the discretion which Cox J was called upon to exercise. For the applicant to have shown his address as "110 Hampden Road, Hobart", which is the address at which Garity Hurd carried on practice, verged on the misleading. The applicant persisted with disclosing that address as being his address in subsequent affidavits made by him, although clearly that was in breach of the Rules of the Supreme Court, O41, r9.

[24]

15. Strictly speaking and leaving aside any role which the applicant played in the giving of initial advice to Mrs Reiter, it may have been correct to say that neither the applicant nor any member or senior employee of "his" firm had any social or professional association with the Company or any of its officers, but frankness dictated that the association which Garity Hurd had had with the Company and with the applicants be disclosed. The applicant claimed not to have been aware of that association at the time he signed the consent. However he conceded that although the work had been introduced to him by Garity Hurd, he made no inquiries of that firm as to its association. Generally, the applicant's evidence on this aspect of the matter was unsatisfactory. At times he was evasive. Clearly the applicant considered that for the purposes of the provisional liquidation the partners and members of staff of Garity Hurd were his partners and staff. He so described them in his initial affidavits in support of his claim for remuneration wherein he gave no indication of the special nature of his relationship with that firm. Those affidavits clearly convey the impression that the applicant was a member of the firm which had done all the professional work in respect of which remuneration was claimed. I have concluded that this lack of frankness on the part of the applicant does not constitute a sufficient reason to deprive him of remuneration which otherwise it would be proper to allow. At the same time the true nature of the relationship between the applicant, his firm and Garity Hurd is relevant for purposes to which I advert in due course.

[25]

16. Counsel for the Company has submitted that none of the remuneration claimed in respect of the work done by that firm ought to be allowed as part of the applicant's remuneration. That submission was made on the following bases:

[26]

1 That by retaining Garity Hurd on terms that his firm would

receive ten per cent of its fees, the applicant was in breach

of his fiduciary obligations.

2 That payment for the work done by Garity Hurd was not in

the nature of remuneration payable to the applicant, but in

the nature of a payment requiring taxation under r72.

[27]

17. Alternatively, counsel for the Company submitted that the remuneration payable in respect of the work done by Garity Hurd ought to be reduced by one tenth, representing the allowance to the applicant's firm under the general arrangements applying within the Felser's Australasia Accountancy Group.

[28]

18. I reject the submission that the applicant ought not to be allowed any remuneration for the work done by Garity Hurd. In dealing with the alternative submission I will examine the consequences which ought to flow from the fiduciary nature of the relationship between the applicant and the Company. Suffice it to say for the moment that it ought not to result in the applicant being deprived of all remuneration which relates to the work done by Garity Hurd. As to the submission that remuneration for this work ought to be subject to taxation under r72, a similar question was considered in Re The Trustees Executors and Agency Company Limited (recs and mgrs appointed) (1985) 3 ACLC 475 where a liquidator, who was a member of a firm of chartered accountants practising in Melbourne, had had work done in other States by associated firms of accountants practising in those States. I adopt the views expressed by Hampel J who, referring to the Victorian equivalent of r72, said at 478-9:

[29]

"In my opinion, the remuneration of a provisional liquidator,

including the cost of services provided to him by his

employees, servants and agents who are engaged to assist him

in the conduct of the liquidation is not required to be taxed

in accordance with O 1 r 110 of the Companies and Securities

Rules. For the purposes of r 110 a distinction is to be

drawn between services provided to a liquidator (including a

provisional liquidator) by his associates, staff and

interstate agents who assist him with his function as

liquidator, and services provided by outside consultants who

are engaged by a liquidator for a specific task required to

be done in the winding up. This distinction is suggested by

an ejusdem generis interpretation of the opening words in r

110, namely, 'every solicitor manager accountant auctioneer

broker or other person employed by a liquidator in the

winding up'. The class of persons described is in the nature

of independent professionals who would ordinarily bill the

liquidator for their services. Accordingly, their fees can

be controlled by the Court through the processes of taxation.

In the present case remuneration is sought in respect of

persons who ordinarily would not be expected to bill the

liquidator for their services. It is unrealistic to expect

that a typist, secretary, or even an accountant employed by a

liquidator to assist him with his duties should be required

to render a bill in taxable form to the liquidator for the

services they provide. They are paid their salaries and

wages, agency fee and drawings from the partnership in the

ordinary manner. The liquidator then seeks a determination

for the Court in accordance with sec 373(2) of the Companies

(Victoria) Code as to his remuneration out of which he must

meet these expenses. It is through this process, and not

[30]

19. It is necessary to give further consideration to the nature and basis of the allowance of ten per cent. The evidence of the applicant was that any remuneration received in relation to work done by the insolvency division of the group was paid into an account designated for that purpose. Where the work had been done partially by the firm of Felser Russell and partially by one of the interstate practices within the group, the remuneration would be shared. Felser Russell was paid that part of the remuneration which related to work done by that firm together with ten per cent of the remuneration referable to the work done by the interstate firm. The balance of the remuneration was paid to the interstate firm. There was some suggestion that to some extent the ten per cent allowance was by way of remuneration to Felser Russell for the provision of manuals and the like to the interstate firm. It was not suggested that that accounted for a significant proportion of the allowance. In any event the provision of such materials was merely a method of instructing the interstate firm in how work to be done on behalf of the applicant was to be performed. I am satisfied that largely the allowance represented a profit for Felser Russell, seen to be justified by the fact that the provision of the services of an official liquidator who was a member of the firm enabled Garity Hurd to do work which otherwise it would not have been able to do. No partner of Garity Hurd was an official liquidator. Unless it could enter into an arrangement with an official liquidator, it would need to turn away any work which required the services of one.

[31]

20. It is of the nature of the office of a provisional liquidator that he is entitled to be remunerated for his work. That remuneration may include a profit element. Despite there being a fiduciary relationship, the entitlement to remuneration containing a profit element results in there being some necessary conflict between interest and duty (see Re Bridal Centre Co Pty Ltd (1985) 75 FLR 449). It is in the public interest that official liquidators are available for appointment. It is unlikely that they would be available if they were not entitled to receive remuneration containing a profit element. In general terms a profit element provides a return on the capital employed by an official liquidator in his practice and compensates him for the time he devotes to the duties of his office and taking the usual risks of being in business. None of these bases provide any reason for allowing to the applicant some remuneration for the work done by Garity Hurd beyond that which that firm expects to receive for that work. If no remuneration were to be allowed or paid, then Garity Hurd would receive none. Neither the applicant nor his firm is under any obligation to pay anything to Garity Hurd beyond such remuneration as may be allowed in respect of the work done by it. The applicant had no capital employed in Garity Hurd.

[32]

21. If the applicant had employed his own staff to do the work done by Garity Hurd, he would have been liable to pay them and meet the office overheads relating to them without any certainty of receiving remuneration in respect of the work done by him or them. By utilising the services of Garity Hurd he avoided those risks. In reality the applicant and Garity Hurd were engaged in a joint venture. To allow to the applicant remuneration which countenances his arrangements for the sharing of professional fees with Garity Hurd would be to countenance conduct inappropriate for an officer who owes a fiduciary duty to the Company. In reality Garity Hurd agreed to do the work for 90 per cent of the IPAA recommended fees. That being so the applicant ought to have had it do the work on that basis rather than seeking for himself not only proper remuneration for the work done by him and his firm but also 10 per cent of the proper remuneration for the work done by Garity Hurd. It could not be suggested that the applicant could receive some form of commission on costs, charges or expenses paid to him to the solicitors or the valuers employed by him. Clearly, if such a commission had been paid or allowed, he would have been required to account for it to the Company. He could not retain it. I see no reason in principle to apply any different criteria where the applicant makes use of the services of an associated firm in circumstances where he will never be liable to pay the remuneration for the work done by that firm, except to the extent that it is allowed and paid to him, and will never be liable for any of the costs incurred by that firm in having the work performed. It is not reasonable to allow, in respect of the work done by Garity Hurd, more than the remuneration which that firm agreed to accept. Principle dictates that a greater allowance ought not to be made.

[33]

REMUNERATION IN CONNECTION WITH THE MEETING OF CREDITORS

[34]

22. There was held on 23 April 1993 a meeting of the creditors of the Company. A substantial proportion of the remuneration claimed relates to that meeting, including convening it and preparing a report to creditors. Doing the best I can on the fairly sketchy material that I have, I conclude that in excess of $5,000 of the remuneration claimed is referable to this meeting. It is necessary to consider the circumstances of the meeting and of the matters leading up to it.

[35]

23. It seems that soon after the appointment of the applicant, negotiations commenced between the two shareholders with a view to one acquiring the shareholding of the other. That was an obvious solution to the problems which had arisen. If agreement could be reached on this and the agreement completed, the deadlock in the Company would disappear and it would be appropriate for the application for winding up to be dismissed. The Company was perfectly solvent and the purchasing shareholder could continue to carry it on.

[36]

24. On 25 March 1993 a telephone meeting was held between the two directors and the applicant. Agreement was reached in principle that Werner Reiter purchase Markus Reiter's shares for the sum of $45,000. The record of the meeting does not suggest that any question relating to moneys owing by the Company to Markus Reiter was discussed at that meeting. The solicitors for Werner Reiter prepared a draft agreement for sale. It accorded with what had been discussed at the meeting. It contained two conditions precedent, namely that a meeting of the creditors of the Company resolve to approve and/or ratify the agreement and that the Court approve and/or sanction the agreement. It provided that completion would occur on 14 May 1993 or within fourteen days of the satisfaction of the conditions precedent, whichever was the later. The conditions precedent had been inserted at the request of the applicant. Having regard to the provisions of that draft form of agreement, the reason for those conditions is obscure. There appears to have been no reason for the Court or the creditors to have had any interest in an agreement between the two shareholders whereby one purchased the shares held by the other. The applicant gave me no satisfactory explanation for requiring these conditions precedent.

[37]

25. Virtually immediately upon the receipt of the draft agreement, the applicant proceeded to prepare a report to creditors and to send it, together with a notice of meeting, to them. The notice of meeting indicated that there were two items of business for the meeting, namely a discussion of the applicant's report and a consideration of a proposed resolution that the winding up of the Company be stayed. The applicant's report of creditors contained the following statement:

[38]

"The provisional Liquidator has attempted to reconcile the

situation and Mr W J Reiter and Mr M H Reiter have agreed,

that the former purchase Mr M H Reiter's interest in the

company and that Mr M H Reiter resign as a Director. This

agreement is subject to creditors of the company approving

the arrangement. If the creditors of the company so approve

the arrangement, then an Order for a stay of Winding Up would

be sought from the Supreme Court of Tasmania."

[39]

26. The Minutes of the meeting are not particularly illuminating. Other than recording the time and place of the meeting, they do no more than record a resolution in the following terms:

[40]

"IT WAS RESOLVED:

(1) That the winding up of the company be stayed.

Motion carried unanimously.

(2) That subject to the approval of the Supreme Court of

Tasmania, that the proposed share/sale agreement between W J

Reiter and M H Reiter be approved.

Motion carried unanimously."

[41]

27. The applicant was unable to tell me whether a form of agreement was put before the meeting or what, if anything, was said at the meeting about the terms of the proposed agreement. That is a matter which is not unimportant because the agreement which was ultimately entered into (and no agreement had been entered into at the time of the meeting) contained a further condition precedent (not contained in the draft provided to the applicant) which might well have been of interest to creditors. There is no evidence upon which I can find that that condition precedent was ever brought to the attention of creditors. Certainly the applicant could not say that it had been. It might be wondered what was the purpose of the meeting and what was the effect of the resolution adopted by it. The applicant was unable to offer any satisfactory explanation. The only matter concerning the agreement which was ever relevant to creditors was the payment by the Company of moneys owing by it to Markus Reiter in his capacity as a creditor of the Company. The making of such a payment would have satisfied the further condition precedent. I gained the clear impression that the applicant did not seem to understand this. I find that surprising.

[42]

28. The agreement for the sale of shares is expressed to have been made on 25 May 1992 (an obvious misprint for 1993). It contained the further condition precedent, which had not appeared in the draft, that prior to completion Markus Reiter receive moneys due to him by way of repayment of a loan account and for unpaid wages, holiday pay and redundancy pay. The amount totalled $20,805. The insertion of that condition precedent did not entail Markus Reiter receiving more than what had been provided for in the initial draft because the purchase price for the shares was reduced by the same amount.

[43]

29. It would have been appropriate for the applicant to seek the authority of the Court to make the payment of the sum of $20,805 out of the Company's funds and to obtain the views of the creditors as to the making of that payment so that those views might be put before the Court. Nothing was done to that end. On 26 May 1993 solicitors acting for Werner and Elaine Reiter wrote to the applicant advising him that they had arranged finance for their clients which would enable them to meet the sum of $45,000 and also to provide further working capital for the Company. That did not result in the applicant doing anything. He was finally moved to take some action on 24 June 1993 when his solicitors sought an urgent appointment before a judge with a view to obtaining an order that the Company be wound up and the applicant be appointed liquidator. I deal with that aspect of the matter later in these reasons.

[44]

30. Insofar as obtaining any approval of creditors was concerned, I accept the view expressed by Mr Bayley that any approval of creditors could have been obtained in a way far more economical than by convening a meeting and furnishing to creditors an extensive report prepared at great cost, most of which had little, if anything, to do with the matter at hand. There were very few outside creditors. A letter to the creditors seeking their concurrence to the making of the payment to Markus Reiter and the borrowing by the Company of an equivalent amount from Werner and Elaine Reiter (because that is what the evidence suggests was proposed) and containing some background information, followed by an application to the Court seeking authority for such transactions would have been appropriate after the agreement had been entered into and the availability of finance had been confirmed by the solicitors. What the applicant did was not only much more expensive but it was done prematurely and was misdirected. I do not consider that remuneration ought to be allowed in relation to it. A provisional liquidator ought not to be deprived of remuneration for work done by him as the result of an error of judgment. However the work in relation to the meeting goes beyond being the product of a mere error of judgment. Not only was it entirely misconceived but it has all the hallmarks of over-servicing.

[45]

REMUNERATION FOR THE PREPARATION OF THE STATEMENTS OF AFFAIRS

[46]

31. The applicant provided what he described as assistance to the directors to enable them to prepare their reports as to affairs of the Company. Doing the best I can, it seems that some $1,750 is sought by way of remuneration for performing this task. Remuneration ought not to be allowed for this work. It was not part of the provisional liquidator's functions or duties to prepare the report. The Law, s475(1) imposed the duty of making out and verifying the statement of affairs upon the directors. In the present case, whilst the applicant referred to assisting the directors, in fact the reports were prepared by him. It is completely inappropriate for a liquidator or provisional liquidator to be involved in preparing the report. It is a report to him. In the case of a winding up he is to prepare a report under s476 after receiving the directors' statement and it may be assumed that he is to have regard to it. The inappropriateness of a liquidator or provisional liquidator preparing the report is recognised by s475(8) which permits him to allow some amount to be paid out of the property of the Company in relation to costs incurred by a director in preparing the report. Nothing should be allowed for remuneration in relation to the preparation of the reports.

[47]

32. Some $1,200 or thereabouts is claimed by way of remuneration for preparing a report under the Law, s476. There was no occasion to prepare such a report. Section 476 has no application to a provisional liquidator. The applicant said that he prepared it because he considered it expedient to do so. Why he considered it expedient was not made clear to me. He did not suggest that any real purpose was served by the preparation of this report. I can think of only two reasons. Either the applicant prepared the report because he was not conscious of the fact that the law did not require it or its preparation was an act of conscious over-servicing. I cannot say what is the true explanation for the preparation of this report. The applicant, as provisional liquidator, ought not to be allowed remuneration for preparing a report which is required by law to be prepared only by those holding an office which the applicant did not hold.

[48]

REMUNERATION FOR THE APPLICANT'S APPLICATION FOR WINDING-UP

[49]

33. As I have mentioned, on 24 June 1993 by letter lodged with the Registrar and in purported reliance on the liberty reserved by Cox J, the applicant asked that the matter might be listed on the first available date so that he could apply for orders that the Company be wound up, that he be appointed liquidator and determining his remuneration as provisional liquidator. Whether the applicant had any standing to seek an order that the Company be wound up may be doubted. In Zempilas v JN Taylor Holdings Ltd (No5) (1991) 5 ACSR 22 Debelle J held that the expression "the liquidator" appearing in the Law, s462(2) ought to be construed as including a provisional liquidator. With respect, I have doubts as to whether that is correct. The word "liquidator" is defined in the Law, s9. An application of that definition to s462(2) would result in a different construction from that favoured by Debelle J.

[50]

34. I need not finally determine whether s462(2) authorises the making of an application to wind up a Company by a provisional liquidator appointed to it because, even if it does, a provisional liquidator may not make the application except in circumstances where it would be proper to do so. It is a mystery to me as to why the applicant considered it appropriate to make that application. In his affidavit in support of the application to wind up the Company, the applicant deposed as follows:

[51]

"(vi) Mr (sic) appointment as Provisional Liquidator resulted

from a dispute between the two Directors of the company, M H

Reiter and W J Reiter, after negotiations with myself and the

Directors, an agreement was reached whereby W J Reiter would

purchase the interest of M H Reiter in the Company. The

agreement was subject to approval of creditors. A Meeting of

Creditors was held on 23rd April 1993 at which creditors

approved the sale. The Agreement was dated 25th May 1993.

(vii) To date, the Contract between M H Reiter and W J Reiter

has not settled. I believe W J Reiter has attempted to

obtain finance to complete the contract. A copy of a letter

from the Trust Bank Tasmania to McVeity and McDonald, dated

1st June 1993, is attached and marked Annexure 'A'. However,

no funds have been paid to the vendor as at 30th June 1993

nor have I received any confirmation that finance has been

obtained to enable settlement to take place.

(viii) As the Company has no ongoing contracts, the costs of

the Winding Up will be met solely by the realisation of the

assets of the company. I therefore request my appointment as

Official Liquidator so as to enable me to conclude the

Winding Up expeditiously and avoid further delays which will

result in a further depletion of the Company's assets."

[52]

35. I do not understand the basis of the statement made by the applicant in that affidavit that he had not received any confirmation that finance had been obtained to enable settlement to take place because on 26 May 1993 solicitors acting for Werner and Elaine Reiter had written to the applicant advising him that finance had been arranged to enable the purchase price to be paid. The applicant sent a copy of that letter to Mr Halliday of Garity Hurd on 27 May 1993. The fact that such a letter had been received was not disclosed in the affidavit. Not surprisingly, when the application came before Underwood J on 2 July 1993 his Honour dismissed the application. It might have been appropriate for the applicant to draw the attention of the Court to the then current situation. It was quite inappropriate for him to make an application that the Company be wound up. No circumstances had arisen where such an application was proper. It was even more inappropriate to make that application on the basis of providing the court with incomplete information. All the circumstances indicated that the matters which had made it appropriate to have the applicant appointed were about to be finally resolved. Such a resolution required that the Company remain in existence. Any delay in a final resolution being achieved may well have been as the result of the applicant failing to understand what was his proper role in connection with the completion of the share sale agreement. In my view the applicant is not entitled to remuneration in relation to the work done by him as to that application. In excess of $2,000 appears to be claimed for work done by the applicant in connection with it.

[53]

REMUNERATION FOR THE PREPARATION OF THE COMPANY'S ACCOUNTS

[54]

36. After his appointment, the applicant prepared accounts for the Company for the period from 1 July 1986 until the date of his appointment. The preparation of such accounts did not form part of the applicant's functions unless it could be said that the preparation of such accounts was appropriate in order to facilitate the carrying out by the applicant of his proper functions. The applicant said that it was appropriate for him to prepare the accounts because they were of assistance in making a judgment as to whether it was appropriate for the Company to continue to carry on business after the appointment. Mr Bayley told me that it was his understanding that work of this nature would not be seen as work proper or necessary to be performed by a provisional liquidator and I accept that evidence, although in some cases there may exist special circumstances which make it appropriate to do this work.

[55]

37. Immediately before the appointment the only business being carried on by the Company was the performance of a drilling contract with Renison Ltd. Upon the appointment of the applicant as provisional liquidator, Renison Ltd terminated the contract. There were some initial discussions between the applicant and Renison Ltd with a view to having it reinstate the contract but those discussions did not have the desired result. I am satisfied that within a week or so of the applicant's appointment it was clear that trading on was not a practical possibility. The work on the accounts was largely done during the latter half of March 1993. At that stage there was no reasonable likelihood that the Company would obtain any contract enabling it to trade on whether or not that was financially desirable from the point of view of the Company. The preparation of a full set of accounts for part of the financial year was unnecessary and served no useful purpose. At the time that the work was done there was no basis upon which it could have been thought that it was possible that the Company would have contracts to perform enabling it to carry on business. The very matters which caused conflict between the directors were matters which made it unlikely that contracts would be provided. I infer that to some small extent the work done in relation to the preparation of the accounts was by way of ascertaining the property of the Company and to that extent was a proper function to be performed by the applicant. The rest of the work served no purpose and it must have been apparent to the applicant that it served no purpose. Substantially I do not consider that the applicant ought to be remunerated for the work done in relation to the accounts. Nearly $2,500 appears to be claimed for the preparation of these accounts.

[56]

REMUNERATION FOR WORK AFTER TERMINATION OF THE APPOINTMENT

[57]

38. Some of the remuneration claimed by the applicant relates to work done after the termination of his appointment. Counsel for the Company submitted that no remuneration ought to be allowed in relation to any work done after the termination of the applicant's appointment. Of that work, a substantial proportion related to the preparation by him of his claim for remuneration. I deal with that separately. The balance of the work included work which necessarily had to be performed (such as the preparation and lodgment of forms required by law upon the termination of the applicant's appointment) and work not necessarily performed although in some way related to the affairs of the Company (such as discussions with Markus Reiter). Remuneration of almost $1,000 is sought in relation to work done, but not necessarily done, after the applicant ceased to be the provisional liquidator of the Company.

[58]

39. The question as to what, if any, remuneration may be allowed to a provisional liquidator for work done after the termination of his appointment was adverted to by Fitzgerald J (as he then was) in Day v Mount [1984] FCA 96; (1984) 53 ALR 468 where his Honour said, at 475-6:

[59]

"Secondly, I mentioned earlier that counsel for the

provisional liquidator sought to keep open the possibility

that the provisional liquidator's remuneration was not

restricted to costs and expenses in respect of steps taken

prior to the dismissal of the petition. Reference was made

in general terms to costs and expenses which might be

incurred in the re-transfer of administration of the company

from the provisional liquidator to the directors or otherwise

in bringing the provisional liquidation to a conclusion.

Reference was also made to the provisional liquidator's costs

and expenses in respect of his application for remuneration

but that seems to me to be a different question which is

plainly within the power of the court which deals with the

application for remuneration. that aside, I do not find it

easy to conceive of steps outside the period of the

provisional liquidation which could be described in terms

which would attract an entitlement to remuneration in

accordance with the appropriate provisions. However, I

consider it unsatisfactory to attempt to rule on such

questions in advance and in the abstract, divorced from the

facts of a particular case."

[60]

40. Consistently with the rather tentative opinions expressed by his Honour, I hold that the applicant is entitled to be remunerated for work necessarily done by him by way of complying with the law subsequent to the termination of his appointment. On the other hand, other work done by the applicant, such as having discussions with Mr Markus Reiter, ought not to be remunerated. Whatever may be the position as to rights which the applicant may have to claim remuneration from some person for such work, the work was not done by him as provisional liquidator and as such does not fall to be remunerated pursuant to any order that I am to make. As I have said, on my estimate about $1,000 is claimed in relation to the latter type of work and no part of that ought to be allowed.

[61]

REMUNERATION FOR PREPARATION OF THE CLAIM FOR REMUNERATION

[62]

41. A very large proportion of the remuneration claimed relates to the work done by the applicant to prepare his claim for remuneration. On my assessment, in excess of $11,000 is claimed for such work. Counsel for the Company submitted that no part of it, whether done before or after the termination of the applicant's appointment, ought to form part of the remuneration to be fixed by me but that it ought to be treated as being part of the costs of the application. I do not accept that submission. The dictum from Day v Mount (supra) to which I have referred would suggest the contrary to be the case. It is difficult to see how remuneration for such work would form part of the costs of the application in the normal sense. In my view, work properly done by the applicant by way of preparing his claim for remuneration falls to be dealt with as part of his remuneration.

[63]

42. It does not follow that the whole of the amount claimed by the applicant ought to be allowed to him. There are two substantial reasons for making a very significant reduction in the amount claimed. The first arises out of the conclusions which I have already reached, namely that the applicant did a substantial amount of work which he ought not to have done and for which he is not to be remunerated. Insofar as he did work in preparing that part of the claim for remuneration, it is inappropriate to remunerate him for it. The second reason is that for various reasons the applicant has done far more work than is necessary in preparing his claim for remuneration. Numerous affidavits were filed by him in support of the claim. In part they became necessary because of questions I raised in relation to the initial affidavits. On first dealing with the application for remuneration it became apparent to me that the applicant did not reside in Tasmania and was not a member of the firm which had done much of the work. The first affidavit in support of a claim for remuneration was that of the applicant sworn 29 April 1993. It contained the following material:

[64]

"... I, Andrew C R Lee, of 110 Hampden Road, Hobart in the

State of Tasmania, Official Liquidator, being duly sworn make

oath and say as follows:

...

4 The annexures hereinbefore referred to indicate the general

nature and scope of the work performed by myself and my

partners and staff as provisional liquidator up to the 16th

April 1993. More particularly I and my partners and staff

have been involved in carrying on the business of the company

during the period of provisional liquidation involving

discussions with directors and contractee assisting in the

preparation of the Statement of Affairs as at 22nd February

1993, conferring with and reporting to creditors of the

company, conferring with solicitors and directors regarding

the possibility of a stay of the winding up, conferring with

solicitors concerning representation to the Court, and all

matters incidental thereto including the obtaining of all

necessary valuations, stocktaking and securing assets,

circularisation thereof and conferences with interested

parties and collection of sundry debts.

...

8 The firm of which I am a partner maintains its time records

in a computerised system and the information which is fed

into the computer has its origin in the recording of daily

timesheets and diaries kept by myself and members of my

staff."

[65]

43. On 29 July 1993 the applicant swore a further affidavit in support of a claim for further remuneration which contained statements similar to those contained in the earlier affidavit. Having regard to the facts to which I have earlier referred, those affidavits tended to give a misleading picture as to what had occurred. I observe that the arrangement by which Felser Russell was entitled to retain ten per cent of any remuneration allowed in respect of the work done by Garity Hurd was not disclosed in any affidavit. That fact was not disclosed by the applicant until he told me about it during the course of cross-examination by counsel for the Company.

[66]

44. To a substantial degree, the time spent by the applicant in relation to his claim for remuneration was increased by his initial lack of frankness. It also was increased by the nature of the record keeping adopted by him and Garity Hurd. Apparently the records were so inadequate that many hours of work were required to be performed merely to provide a general summary of the nature of the work performed. It is implicit that any remuneration allowed for particular work contains an ingredient for the keeping of proper records of such work as it is done so that the Court can readily be informed as to the nature of the work done in relation to which remuneration is claimed. A failure to maintain such a system ought not to unduly increase remuneration which otherwise would be payable. Having regard to the various considerations to which I have referred, I consider the sum of $2,000 or thereabouts to constitute adequate remuneration for the preparation of the claim for remuneration. In making that assessment I have allowed for the work done by the applicant in relation to obtaining security for the payment of his remuneration after the termination of his appointment.

[67]

45. In calculating his claim for remuneration, the applicant has adopted the hourly rates set down in the Guide to Hourly Rates effective 1 July 1992 adopted by the Insolvency Practitioners Association of Australia. The explanatory notes to that guide include the following statement:

[68]

"It is not intended that this guide should operate as a

fixation of charges in all administrations carried on in all

areas of Australia. It is rather as a standard from which an

appropriate guide to hourly rates may be approved in each

case, and may include calculating a percentage variation to

the rates set out having regard to the complications and

other circumstances."

[69]

46. I had occasion to give some consideration to the use of that guide in Re Fine Food Distributors Pty Ltd; Ex parte Whitehouse (1992) 9 ACSR 599. In that case I adopted the IPAA scale applying from 1 July 1991, observing that that was the scale which prima facie applied in Victoria by operation of a Practice Note [1993] VicRp 7; (1993) 1 VR 128. So far as I have been able to ascertain, that Practice Note has not been superseded by any later Practice Note adopting any later scale of fees recommended by the IPAA. Counsel did not submit that any later scale has been adopted in Victoria. In the case which I have mentioned the provisional liquidators had carried on the business of the company, which was quite extensive, and had done so with considerable success and therefore for the benefit of those who would be entitled to share in the assets of the company on winding up. In the present case, the assets of the Company were quite modest, it ceased to carry on business very soon after the provisional liquidator had been appointed and there were very few transactions involving receipts or payments during the period of the applicant's appointment. True it is that there were some difficulties arising out of the hostility between the two directors of the Company, but I am not persuaded that the provisional liquidation could be described as one creating particular difficulty or any particular level of responsibility. The IPAA scale applying from 1 July 1991 is not before me in evidence, but I would infer that the hourly rates thereby recommended were somewhat less than those used by the applicant for his calculations. For the reasons which I expressed in Re Fine Food Distributors Pty Ltd; Ex parte Whitehouse (supra) it would not be appropriate to allow remuneration at a rate higher than that allowed for in the 1991 IPAA guide.

[70]

47. I consider that the IPAA rates ought to be somewhat discounted in relation to the work for which the applicant is entitled to be remunerated for three reasons:

[71]

1 It is implicit from the explanatory notes to the guide that

rates lower than those recommended might well be appropriate

in the case of quite small companies where there are not

special circumstances increasing the level of responsibility

imposed on the provisional liquidator.

2 I have some reservations about the reasonableness of the

amount of time spent by the applicant on work properly done.

By way of example, he said that he spent some hours

"reviewing" the form of agreement for the sale of the shares.

In cross-examination the applicant was unable to explain why

it should take him some hours to read (because that is what

he meant by "reviewing") a relatively short, uncomplicated

and standard form of agreement for the sale of shares. I do

not understand how he could reasonably have taken that length

of time.

3 It seems to have been inevitable that there was some modest

increase in the cost of doing the work by virtue of the fact

that the applicant was practising in Sydney and the day to

day management of the provisional liquidation was in the

hands of Garity Hurd in Hobart. Some of the evidence as to

communications between them suggested that this distance

increased the cost of doing the work. When the applicant was

appointed he permitted himself to be represented to the Court

as practising in Hobart and he ought to be remunerated on

this basis.

[72]

48. In the light of the considerations to which I have referred, it is inappropriate to remunerate the applicant by way of specified hourly rates for specified work. The material before me lacks the particularity which would enable me to adopt that course. I propose fixing the remuneration in a lump sum. In fixing that lump sum I have taken a somewhat broad brush approach. I have taken the amount claimed as a starting point and have made deductions in respect of the specific matters to which I have referred. Those considerations lead me to the conclusion that it would be appropriate to allow the applicant by way of remuneration the sum of $27,500.

[73]

49. I am fortified in that conclusion by the view expressed by Mr Bayley as to what is a proper sum to be allowed. After having had access to such documentation relating to the administration as was made available for his inspection, he expressed the view that on the basis of the recommended IPAA rate for Hobart, a sum of between $20,000 and $25,000 would be reasonable remuneration for the applicant. In general terms, I accept the opinion expressed by him, although I am allowing a somewhat higher figure. I observe that it appeared from some answers given by Mr Bayley in cross-examination that there were some matters which he had not taken into account and it may be that he did not allow for the preparation of the claim for remuneration. In broad terms, by giving weight to the factors which I have specifically mentioned, my ultimate conclusion is not very different from that reached by Mr Bayley.

[74]

50. I determine that the applicant is entitled to receive remuneration in the sum of $27,500 in respect of acting as provisional liquidator of the Company. I will hear the parties as to costs.

At a glance

Court

Decision date

Before

Source

Judgment (74 paragraphs)

Re Reiter Brothers Exploratory Drilling Pty Ltd; Ex Parte Andrew Charles Robert Lee [1994] TASSC 42; (1994) 12 ACLC 430 (21 April 1994)

Parties

Cases Cited (3)