Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd

JUDGMENT 1 HIS HONOUR: This judgment deals with two points: (a) whether a defect in procedure in an administration of a company should be dealt with under s 447A or s 1322 of the Corporations Act 2001 (Cth) (and what is the result of applying the relevant section to the facts of the instant case); and (b) how the court deals with a liquidator's claim for fees that has been overlooked in the process of administration/liquidation. I will deal with these two issues in turn. 2 (a) The basal facts are that the applicant, Mr Reidy, was appointed administrator of the subject company which owed him an amount in excess of $5,000, contrary to s 448C(1). The amount allegedly owed to Mr Reidy was $6,965.09 at the relevant time. This sum was never paid and Mr Reidy has now waived payment. 3 It would appear that the significance of the existence of this debt was overlooked when Mr Reidy accepted appointment. 4 Mr F Lever SC who appeared for Mr Reidy submitted that various parts of s 1322 should be applied to deal with the problem. 5 Section 1322 is a general section dealing with problems that occur where there have been irregularities or worse, which may have invalidated an act of the corporation where no real harm or inconvenience has been suffered as a result of the act. 6 It is clear that one does not apply s 1322 in cases where to do so would be to thwart the operation of some other part of the legislation. Thus for example one cannot use s 1322 to extend the time under s 459G; see David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 7 Furthermore, where the legislature explicitly gives a power by a particular provision, generally that will exclude the operation of general expressions in the Act which might otherwise have been relied upon for the same power: Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia (1932) 47 CLR 1 at 7. 8 Administration is dealt with under Part 5.3A of the Corporations Act. That Part to my mind forms a code for dealing with administration. Section 447A allows the court to make such order as it thinks appropriate about how the Part is to operate. That section is given a very wide application; see eg Re Vouris (2003) 47 ACSR 155 at 179. 9 Because of the doubts about making retrospective orders under s 447A, the courts have considered that s 1322 also may operate in this field; see eg Re Vouris at p 181. However, the general feeling of the authorities if I might use that term, is that unless there is a doubt, s 447A applies and s 1322 is excluded; see eg Re Greg Sewell Forgings Pty Ltd (1995) 17 ACSR 602. 10 In the instant case, s 1322 is insufficient because its effect is only to excuse from civil penalties, not criminal penalties and Mr Reidy has committed a criminal offence unless the court "otherwise orders" under s 448C. 11 I should make it clear that the court expects that professional trustees and professional liquidators will not overlook barriers to their appointment such as those contained in s 448C of the Corporations Act. Those barriers have been seriously erected and a person who jumps them without authority is guilty of a criminal offence. The court has always expected a higher standard of diligence from people who are professional trustees or professional liquidators and who are charging fees for their services than it might expect from an amateur who is acting gratuitously without any experience. 12 There is little in the material to show why it was that Mr Reidy contravened the section. The only explanation is that so much was going on that it was overlooked that he had a claim of over $5,000 against the company. 13 What is really required is a nunc pro tunc order under s 448A. In my view I can make such an order; see Emanuele v Australian Securities Commission (1997) 188 CLR 114. That order should be made in addition to a s 447A order in the form made by Merkel J in Panasystems Pty Ltd v Voodoo Tech Pty Ltd (2003) 21 ACLC 842 and approved by Campbell J in Re Vouris at p 180. 14 Thus the appropriate order on this part of the case is:

(2) Part 5.3A of the Corporations Act 2001 (Cth) is to operate in relation to the defendant company as if an order under s 448C consenting to the appointment of Geoffrey Philip Reidy to act as such administrator notwithstanding that he was a creditor of the company in an amount exceeding $5,000 had been made immediately before that person's consent to be appointed as or his acting as administrator of the company. 15 (b) I now pass to the second matter. 16 The governance of the defendant company after the appointment of an administrator is difficult to set down on paper in a simple form. However, essentially the creditors resolved to accept a deed of company arrangement but then it was realised that there were more claims than had been disclosed and instead the company was put into liquidation. The winding up order was made on 1 June 2004. 17 There was a meeting of creditors on 10 May 2004 at which Mr Reidy sought approval from the creditors for his fees in the sum of $46,200 including GST. At that stage it was thought that the deed of company arrangement would be executed within a short period of time. That did not happen and Mr Reidy said that he continued to work and his fees at the same rate as were previously approved by the creditors were actually $129,758.75 inclusive of GST. This is $83,558.75 in excess of the fee approval which he obtained from the creditors. 18 I am asked to make an order under s 449E(2) of the Corporations Act that Mr Reidy's fees as administrator be increased over and above the amount approved by the creditors to $129,758.75 to take account of the extra work done after 10 May. 19 This application raises some very awkward practical matters. 20 First, as I said earlier, there is a general rule that professional liquidators are to do their work properly and if they forget to ask for their fees, well then, why should anyone else worry? 21 Putting aside that thought, what is the process whereby the court can deal with liquidators' fees? There is not, as with solicitors, a cost assessors system whereby there can be peer review of the fees. The Registrar is the logical person to deal with the matter, but, with respect, she has no inherent skills or knowledge about the proper fees and for a claim of $62,000 the costs in justifying the fees may well be out of all proportion to the fees billed. 22 I put to Mr Lever that I could just make an order that he receive two-thirds of what his client claimed, but Mr Lever dismissed that suggestion summarily as being quite unjust. 23 There seems to be a culture that has grown up with professional liquidators that so long as they have quoted basic rates for principals and clerks and keep time sheets, the creditors or the court must almost automatically allow what they claim. In practice this often occurs because an extra few thousand dollars to the liquidator is only likely to make an adjustment of the dividend to each creditor of less than half a cent. There also seems to be a culture that in making applications of this kind it does not matter very much whether an expensive application is made to the court because the court will probably order that costs be paid out of the company's assets and accordingly the fees will be borne by the creditors with only a very small adjustment to their ultimate dividend. 24 This culture appeared to be in full play when I had the present application brought by a member of the senior bar and there are exhibits of about 70 pages of photostat documents only about ten of which appear to have any relevance to the matter which I am deciding. 25 The costs of the application do not much matter in the instant case because these proceedings having been caused by the oversight of the liquidator, there is no reason why anybody other than the liquidator should bear the costs of the claim. However, I should give fair warning that the court expects this sort of application to be put together professionally and some person with legal skills directing his or her mind to what material must be put before the court to get the order sought. 26 It seems to me that the only practical way of dealing with this application is to go through the liquidator's charge sheet myself and to remove those items which appear to me to be doubtful. Otherwise, consistently with the creditors' attitude, I should allow the fees claimed. 27 A liquidator who "forgets" to get a proper resolution for his fees cannot complain about this, what might otherwise be called "a palm tree justice" method of approaching the problem. 28 One has to deal with the liquidator's time sheets between 10 May 2004 and 1 June 2004. 29 It must be remembered, at that time the liquidator or administrator as he then was, was in the process of running the business prior to it being sold. With the exceptions to which I am about to refer, there does not appear to be anything out of the ordinary in those time sheets for a liquidator carrying out that sort of task. 30 The only items which I believe have not been established are the necessity to have internal conversations about the matter between different members of the liquidator's staff apparently between a "manager" and a "clerk Intermediate II". On my count these amount to $1,008.50. In addition, I cannot see the justification for a clerk of the liquidator spending four hours at a cost of $1,025 to prepare an affidavit for court. This is legal work which is not normally done by a liquidator's office, and if it is to be done, it should be done efficiently. Four hours seems to be excessive because any calculations would normally be annexures or exhibits to the affidavit and everything else should be at the fingertips of the officer in the liquidator's organisation who is handling the matter. 31 Accordingly I would allow the fees at $127,725 or, or to put it another way, add an extra $59,514.50. 32 Thus in addition to the orders I have already foreshadowed there should be the following:

At a glance

Court

Decision date

Before

Source

Judgment (16 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (3)