Deputy Commissioner of Taxation v ACN 154 520 199 Pty Ltd [2020] FCA 134 | Case summary

SCHON GREGORY CONDON IN HIS CAPACITY AS (GENERAL PURPOSE) LIQUIDATOR OF ACN 154 520 199 PTY LTD (IN LIQUIDATION) (ACN 154 520 199) Second Defendant IN THE INTERLOCUTORY APPLICATION SCHON GREGORY CONDON IN HIS CAPACITY AS (GENERAL PURPOSE) LIQUIDATOR OF ACN 154 520 199 PTY LTD (IN LIQUIDATION) (ACN 154 520 199) Applicant on interlocutory process dated 25 October 2019

JAGOT J: 1 These reasons for judgment concern an application pursuant to the former s 473(3)(b)(ii) of the Corporations Act 2001 (Cth) (the Corporations Act) for the determination of the remuneration of special purpose liquidators. 2 The matters which the Court is required to take into account in determining whether the remuneration is reasonable are those set out in the former s 473(10) of the Corporations Act in the following terms: In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work performed by the liquidator was reasonably necessary; (b) the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the liquidator; (d) the quality of the work performed, or likely to be performed, by the liquidator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator; (f) the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator; (i) whether the liquidator was, or is likely to be, required to deal with: (i) one or more receivers; or (ii) one or more receivers and managers; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis: (i) the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and (ii) whether the total remuneration payable to the liquidator is capped; (l) any other relevant matters. 3 The courts have considered the relevant principles on a number of occasions. In particular, they were summarised in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; 93 NSWLR 459 at [54] to [60]. In the written submissions for the special purpose liquidators, the principles enumerated in the cases were identified as follows: (a) a liquidator is entitled to reasonable remuneration for their services; (b) the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable; (c) in determining a liquidator's reasonable remuneration, the Court will have regard to the factors set out in (the former) s 473(10) of the Corporations Act; (d) the Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; (e) the liquidator must lead evidence in sufficient detail so that the Court can determine that question; (f) the Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done, the persons who did the work, the time taken to perform the work and the remuneration claimed; (g) proportionality is an important matter in considering whether remuneration is reasonable. The "value" of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and work that was required but did not result in a return to creditors; and (h) there is no preference to any of the particular approaches to remuneration and, in particular, there is no requirement that a time-based approach to remuneration should be adopted in preference to a percentage-based approach to remuneration. Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; the view taken by any persons who oppose the remuneration application; and the view taken by the Court. 4 The background to the application is identified in the decision of Gleeson J in Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444. 5 As set out in the written submissions for the special purpose liquidators, the company was incorporated on 29 November 2011 and carried on a substantial business of acquiring and refining gold, silver and other valuable metals into fine metal, and ultimately the production of "precious metal" within the meaning of s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act), for sale to dealers. The company lodged business activity statements with the Australian Taxation Office (the ATO) claiming input tax credits totalling some $118,000,000 on the basis that its acquisitions of gold were for the purpose of making GST-free supplies pursuant to s 38-385 of the GST Act. 6 The ATO notified the company that it was conducting an audit into its affairs in July 2014. Shortly thereafter, the company and persons and entities associated with its directors and shareholders entered into a series of transactions which had the effect of moving the assets and the business to a new and related entity. The ATO was and remains concerned that these transactions may have been part of a phoenix operation directed at placing the assets of the company beyond the reach of the ATO as a creditor of the companies. This concern is refuted by the related entities. 7 The ATO's audit resulted in declarations being made under s 165-40 of the GST Act which negated the GST benefits claimed by the company totalling some $73,000,000. On the same day, and as a consequence, the ATO issued notices of assessment and an amended assessment of GST for some $122,000,000 and notices of assessment of administrative penalties of some $58,000,000. The company thereafter lodged objections against the ATO's assessment which were disallowed by the ATO on 21 September 2016. The following day, 22 September 2016, the company resolved that it be wound up in a creditors' voluntary winding-up, and the general purpose liquidator was appointed. 8 On 29 September 2016, the general purpose liquidator issued a circular to creditors which indicated the company had creditors totalling some $210,000,000 including the ATO, which claimed to be owed at that time some $208,000,000, being 99.2% of the monies owed to creditors. On 18 November 2016, the general purpose liquidator commenced proceedings in the Administrative Appeals Tribunal (the AAT) against the ATO for a review of the ATO's assessment. 9 On 6 April 2017, Gleeson J appointed special purpose liquidators as additional liquidators to carry out the functions set out in Annexure A to the orders of that date. Annexure A to the orders specified a broad-ranging suite of investigations into the restructuring of the company and other aspects of the company's dealings, including the consideration of claims available to the company, or its liquidator, arising from the investigation into the examinable matters. Subsequent to the making of these orders, persons and entities associated with the directors and shareholders of the company entered into a further series of transactions that had the effect of again moving the assets and business of the company to another new related entity, which was incorporated on 16 August 2017. 10 Between 7 February and 6 July 2018, the special purpose liquidators conducted public examinations of 16 individuals pursuant to ss 596A and 596B of the Corporations Act. On 9 February 2018, Gleeson J ordered that the examinable matters identified in Annexure A to the orders of 6 April 2017 be expanded to include the subsequent restructure transactions which had been entered into earlier in 2017. On 8 May 2018, the Court made further orders for the production of further documents. 11 In May 2018, Mr Cochineas, a party related to the company, applied to adjourn the then-outstanding examinations and to set aside the further production orders made by Gleeson J. Lee J heard the adjournment application on 6 June 2018. He ordered only that the further production orders be vacated, without prejudice, however, to the rights of the special purpose liquidators to seek production of those documents after the determination of the AAT proceedings. 12 The AAT proceedings were heard in September 2018, at which time judgment was reserved. On 20 December 2019, the AAT delivered judgment in the AAT proceedings, which resulted in the application of the general purpose liquidator being dismissed. 13 I have referred above to the principles which apply to the determination of the special purpose liquidators' remuneration application. As set out in Re Hunter Valley Dental Surgery Pty Ltd (in liq) [2017] NSWSC 691 at [26], the relevant factors focus on: …whether a liquidator's claimed remuneration is reasonable, taking into account all or any of specified matters, including, first the extent to which the work performed or likely to be performed by the liquidator was reasonably necessary; the period during the work was or is likely to be performed; and the quality and complexity of the work. 14 The remuneration application has been notified to the general purpose liquidator, the sole shareholder of the company, the two secured creditors of the company, the ATO, being the largest creditor of the company, and the five next largest unsecured creditors. An objection was received on behalf of the four director creditors. 15 The matters to which I have been taken in the evidence and in the written submissions for the special purpose liquidators identify that the first two funding agreements provide for the ATO to indemnify the special purpose liquidators for their remuneration and expenses. The third of the agreements provides an indemnity for fees and expenses arising from the application by Mr Cochineas. 16 Under the terms of the funding agreements, the special purpose liquidators will be recovering their costs and expenses directly from the ATO and, importantly, the ATO can only recover these payments out of recoveries achieved by the special purpose liquidators through their investigation, and not otherwise from the assets of the company. 17 The first matter which is relevant is the purpose of the appointments of the special purpose liquidators. As was set out in the written submissions for the special purpose liquidators, the purpose of their appointment is unusual. As the terms of Annexure A to the orders of Gleeson J disclose, unlike most liquidations, in this case the special purpose liquidators have been appointed for the specific purpose of undertaking significant and complex investigations with a view to determining whether causes of action are available to the creditors of the company, and if so, prosecuting those causes of action. I accept the submission for the special purpose liquidators that this is not a case where I would, at this stage, expect to be able to compare the remuneration claimed by the special purpose liquidators with the property recovered for the company's creditors. 18 I also accept the submission for the special purpose liquidators that I should have regard to the complexity of the tasks required of them. It is apparent from the reasons for decision of Gleeson J that the company's business activities were significant. This is demonstrated by the fact that its activities enabled it to lodge a claim with the ATO for input tax credits for almost $118,000,000. As I have said, the Court appointed the special purpose liquidators in order to investigate the company's activities, as well as those of its directors and officers, both in terms of managing the business and in selling off its assets through the two restructuring processes entered into in 2015 and 2017. 19 I agree with the submission for the special purpose liquidators that the company's activities by their very nature are both complex and substantial. Relevant to this fact is that in the application made to Gleeson J for the appointment of special purpose liquidators, the ATO submitted that the size and complex nature of the investigations involved required the appointment of a large and experienced firm of liquidators, such as KordaMentha. 20 I accept also the submission for the special purpose liquidators that the fundamentally important consideration of the reasonableness of their remuneration has been comprehensively addressed in the evidence adduced by these special purpose liquidators. 21 First, as has been said, the work required of the special purpose liquidators has been identified to be within the scope of Annexure A to the orders of Gleeson J. Accordingly, the work that has been undertaken is not open to challenge. 22 Second, the evidence for the special purpose liquidators has broken down the work into descriptions of tasks, specifically by reference to the two funding agreements and Annexure A to the orders. In summary, the special purpose liquidators have carried out extensive investigations into the matters set out in Annexure A to the orders (as subsequently amended), including: (1) conducting examinations, which involved the examination of 16 individuals over 10 days; (2) securing the production, both compulsorily and voluntarily, of a large number of documents; (3) dealing with and defending several applications made in respect of the examinations, including the application by Mr Cochineas to which I have referred; and (4) reviewing the examination transcripts and the documents collected. 23 Third, the evidence for the special purpose liquidators has provided an account in itemised form setting out, the details of the work done, the persons who did the work, the time taken to perform the work, and the remuneration claimed, including: (1) a summary of the monthly charges for the remuneration; (2) a summary of the works undertaken by the special purpose liquidators; (3) a summary of the manner in which the special purpose liquidators have resourced the relevant works; (4) the provision of a staff schedule which identifies the persons who performed the work, the title of each person, the hourly rate charged by each person and the total hours of work performed by each person; (5) a bundle of billing reports which described the date on which the particular item of work was performed, the person who performed the work, the person's title and charge-out rate, a description of the work performed, the time spent on the work, the charge for the work and the item in the task list that the work related to; (6) an explanation of the billing systems used by the special purpose liquidators; (7) a breakdown of the remuneration and disbursement so far as they relate to each of the funding agreements; and (8) a schedule which summarises the allocation of the relevant work to each of the funding agreements. 24 I accept the submission for the special purpose liquidators that the evidence shows that the work which has been undertaken falls within the relevant task list and Annexure A to the orders and was otherwise reasonably necessary. The special purpose liquidators have also pointed to a letter from the ATO, which is liable to pay the remuneration under the funding agreements, confirming that it is satisfied with the works undertaken. 25 In these circumstances, I consider that the reasonableness of the remuneration has been demonstrated by the evidence for the special purpose liquidators. The evidence also adequately refutes the objection submitted by the director creditors to the effect that the costs appear to be excessive. 26 In terms of proportionality, as Black J explained in Re Sakr Nominees Pty Limited [2017] NSWSC 668 at [25]: The work done must be proportionate to the difficulty and importance of the task and the context in which it needs to be performed and the fact that work does not increase the funds available for distribution to creditors or contributories does not mean that the liquidator is not entitled to be remunerated for it, where it was reasonable to carry out that work and the amount charged is reasonable. 27 The evidence adduced by the special purpose liquidators comprehensively addresses the work which has been required and why those works were reasonably necessary. It includes the explanation from the special purpose liquidators that the works are preparatory to the consideration and/or commencement of recovery proceedings which, if brought and if successful, would result in a benefit to creditors. According to the special purpose liquidators, the works that have been carried out have been proportionate and reasonable when regard is had to the value of the creditors' claims, including particularly the ATO's claim of some $208,000,000 as well as the terms of Annexure A to the orders of Gleeson J, which disclose the complexity of the restructuring transactions in connection with the company. 28 Reference has also been made in the submissions for the special purpose liquidators to the fact that the remuneration has been determined using the time costing method. This is a matter which is specifically referred to in the former s 473(10)(k) of the Corporations Act, the terms of which are set out above. In this regard, the evidence identifies in detail the time taken in the performance of the work. It is also noted that the terms of the funding agreements did cap the amounts that can be recovered by the special purpose liquidators, but when those caps were exhausted, a further funding agreement has been obtained and approval sought and obtained from the Court. 29 It is submitted for the special purpose liquidators that the remuneration will not cause any prejudice to the creditors of the company because the remuneration is being paid by the ATO and not from the current assets of the company, and the ATO is only entitled to recover its payments in the event that the special purpose liquidators successfully recover assets for the benefit of the company's creditors. I accept the submissions for the company that although the director creditors have challenged this assertion, there does not seem to be a reasonable basis for the challenge. 30 In these circumstances, having regard to the factors set out in the former s 473(10) of the Corporations Act, I am satisfied that the remuneration sought by the special purpose liquidators is reasonable. 31 The only other matter to which regard must be had is the application of the special purpose liquidators for the payment of certain disbursements. As set out in the written submissions for the special purpose liquidators, they are not entitled to approval of those expenses under s 473, but seek instead a justification order under the former s 479(3) of the Corporations Act. 32 In this regard, reference is made to the decision of Brereton J in Re Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8] as follows: Ordinarily, the Court approval of a liquidator's remuneration does not include disbursements: the liquidator's right to indemnity in respect of out-of-pocket expenses depends on the general law relating to a trustee's right of indemnity. Whether, and to what extent, a liquidator is entitled to recoup a disbursement from the estate, ordinarily arises upon the taking of a trustee's accounts, or upon a misfeasance summons arising from a liquidator's accounts. Sometimes, a liquidator may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement. 33 As also pointed out in the submissions for the special purpose liquidators, the scope of the former s 479(3) was explained by Black J in Re Rolcross Pty Ltd (in liq) [2012] NSWSC 846 at [12] in the following terms: Section 479 (3) allows a liquidator to apply to the Court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation … . The Court will typically not give directions where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision, but may do so where a legal issue or attack on the propriety of the decision is raised: … . A liquidator is protected against a claim for breach of duty if he or she acts in accordance with a direction given by the Court under s 479(3) of the Corporations Act and he or she has made full disclosure to the Court in the relevant application. 34 In these circumstances, I am satisfied that the orders that the special liquidators seek for remuneration and otherwise should be made. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot .

Deputy Commissioner of Taxation v ACN 154 520 199 Pty Ltd

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