Deputy Commissioner of Taxation v Italian Prestige Jewellers Pty Ltd

Legal framework 26 Division 60 of Pt 3 of the Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act 2001 (Act) (IPS) sets out applicable rules concerning the remuneration of the liquidators. 27 Section 60-1 sets out a simplified outline of Div 60, including relevantly: The external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration. The amount of remuneration will usually be set under a remuneration determination. Remuneration determinations are made by: (a) in a members voluntary winding up--the members; and (b) in most other cases - the creditors or the committee of inspection (if there is one). However, if there is no remuneration determination, the external administrator will be entitled to receive a reasonable amount for the work. The maximum amount that the external administrator may receive in this way is $5,000 (exclusive of GST and indexed). 28 There has been no suggestion that this outline is inaccurate. It emphasises both the liquidators' entitlement to remuneration and, if there is no remuneration determination within the meaning of the IPS, that the liquidators' entitlement to receive a reasonable amount for their work is drastically limited in a large and complex liquidation (by the terms of s 60-5). 29 Section 60-10(1) of the IPS provides: (1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made: (a) by resolution of the creditors; or (b) if there is a committee of inspection and a determination is not made under paragraph (a) - by the committee of inspection; or (c) if a determination is not made under paragraph (a) or (b) - by the Court. Note: For determinations made by the Court, see also section 60‑12 (matters to which the Court must have regard). 30 In this case, it is not practicable for remuneration determinations to be made by the creditors. So far as I am aware, the liquidators have not attempted to have remuneration determinations made by the COI, however, as discussed in more detail below, it is probably neither reasonable nor appropriate to expect the COI to take on a task of this dimension in such a large liquidation where there are so many affected parties. In my view, having regard to the size of the liquidation including the high value of the funds held on trust and the large number of persons who have interests in the funds, it is more appropriate that the liquidators' remuneration be determined by the Court. 31 Section 60-12 of the IPS provides relevantly: In making a remuneration determination under paragraph 60-10(1)(c) … 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 by the external administrator was necessary and properly performed; (b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed; (c) the period during which the work was, or is likely to be, performed by the external administrator; (d) the quality of the work performed, or likely to be performed, by the external administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator; (f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the external administrator 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 external administrator (i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors; (j) if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the works; and (m) any other relevant matters. 32 In Halifax (No 6) at [15], I noted the principles applicable to the assessment of the amount of a liquidator's remuneration as stated by Black J in In the matter of Primespace Property Investment Limited (in liquidation) [2016] NSWSC 1821, at [29]-[30], including that: (1) the court must bring an independent mind to bear on the question whether the remuneration sought is fair and reasonable; (2) the liquidators must lead evidence in sufficient detail that the court can determine that question; and (3) 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; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; (1998) 16 ACLC 1653 at 102-103. 33 The practical problem which arises is how the liquidators' remuneration can be determined reasonably promptly by the Court, having regard to the competing demands on Court resources. 34 The liquidators submitted that the Court has power to make the remuneration method order, or orders giving effect to the remuneration review proposal pursuant to s 60-10(1)(c) and s 60-10(3)(b) of the IPS or alternatively s 90-15 of the IPS. The liquidators also contended that the Court could implement either proposal through the appointment of a referee pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) (FCA Act). 35 Section 60-10(3) provides: A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways: (a) by specifying an amount of remuneration; (b) by specifying a method for working out an amount of remuneration. 36 Section 60-10(4) applies to a determination of the kind contemplated by s 60-10(3)(b). It provides: (4) If a determination under this section specifies that the external administrator is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of remuneration worked out on a time-cost basis that the external administrator is entitled to receive. 37 In Deputy Commissioner of Taxation v Italian Prestige Jewellers Pty Ltd [2018[ FCA 983 (Italian prestige Jewellers), Markovic J made an order pursuant to s 60-10(1)(c) approving the remuneration of special purpose liquidators up to an amount specified in a deed of funding and indemnity between the special purpose liquidators and the Deputy Commissioner of Taxation. The amount has been calculated on a time-cost basis showing a detailed breakdown of the applicable hourly rates, the steps to be undertaken, the estimate of the amount of time required for each step and the estimate of the cost including GST for each step based on the hourly rates and time estimate. At [55], her Honour was satisfied that the amount for which the determination was sought relevantly complied with the requirements of s 60-10(3)(b) and s 60-10(4). 38 Section 90-15 provides relevantly: 90-15 Court may make orders in relation to external administration Court may make orders (1) The Court may make such orders as it thinks fit in relation to the external administration of a company. Orders on own initiative or on application (2) The Court may exercise the power under subsection (1): (a) on its own initiative, during proceedings before the Court; or (b) on application under section 90- 20. Examples of orders that may be made (3) Without limiting subsection (1), those orders may include any one or more of the following: (a) an order determining any question arising in the external administration of the company; … (f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company. 39 Section 54A of the FCA Act provides: (1) Subject to the Rules of Court, the Court may by order refer: (a) a proceeding in the Court; or (b) one or more questions arising in a proceeding in the Court; to a referee for inquiry and report in accordance with the Rules of Court. (2) A referral under subsection (1) may be made at any stage of a proceeding. (3) If a report of a referee under subsection (1) is provided to the Court, the Court may deal with the report as it thinks fit, including by doing the following: (a) adopting the report in whole or in part; (b) varying the report; (c) rejecting the report; (d) making such orders as the Court thinks fit in respect of any proceeding or question referred to the referee. 40 The liquidators submitted that the Court should be guided by the general case management principles set out in s 37M of the FCA Act in relation to the operation of procedural rules in the IPS and in relation to s 54A, on the basis that they are "civil practice and procedure provisions" within the meaning of s 37M(4). Section 37M(1) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes, according to law; and as quickly, inexpensively and efficiently as possible. 41 The liquidators also drew attention to s 90-23(6) and s 90-23(7) of the IPS which provide for the Court to appoint a registered liquidator to carry out a review into a matter that related to the external administration of the company. However, by s 90-26(4), a reviewing liquidator must not review remuneration of an external administrator of the company that relates to a period unless the period is, relevantly the "prescribed period". By r 90-7(2) of the Insolvency Practice Rules (Corporations) 2016, a reviewing liquidator must not review remuneration of an external administrator unless the remuneration relates to a remuneration determination made in the six month period before the reviewing liquidator was appointed. As these provisions do not affect the need for a remuneration determination, they do not assist in addressing the problem in this case.

Proposed remuneration method order 42 The liquidators propose that the practice of presenting non-objection resolutions to the COI (and the COC in the case of the Halifax NZ liquidation) should not continue, and that an independent third party should review the reasonableness of the liquidators' remuneration. This aspect of the liquidators' proposal is based on matters including evidence that three of the eight members of the COI did not access the remuneration report prepared by the liquidators and shared with the COI prior to their February and March 2020 meetings. Further, the minutes of those meetings record that members of the COI voted against the non-objection resolutions for reasons that are not relevant to the determination of the liquidators' remuneration. 43 The liquidators propose that the independent third party would be engaged to review the reasonableness of the liquidators' remuneration by reference to matters relevant to that task, being the matters set out at s 60-12 of the IPS, and would be provided with relevant material including: (1) the Australian Restructuring Insolvency and Turnaround Association (ARITA)'s Practice Statements on Remuneration and Remuneration Reporting; and (2) a remuneration report, prepared by the liquidators, for the period of remuneration they are reviewing and work-in-progress time entries of the liquidators. 44 The independent third party would also be permitted to speak with members of the liquidators' staff. 45 The liquidators also noted that the process of presenting remuneration to the COI had proven to be costly and resource-intensive. The liquidators estimated that the cost of the March 2020 COI meeting, which would been unnecessary apart from the failure of the non-objection resolutions to pass at the February 2020 meeting, at AUD13,000. 46 The liquidators propose that it would be more time and cost effective for there to be a single review of the liquidators' remuneration for the two liquidations, rather than an independent third party review for the Halifax AU liquidation and a COC review for the Halifax NZ liquidation. Part of this proposal involves the liquidators' preparation of a joint remuneration report, covering both liquidations. The liquidators anticipate that, over time, there would be cost efficiencies arising out of the increasing familiarity of the independent third party with the two liquidations. 47 The liquidators referred to the following statement by the Full Court of the NZHC, comprising Heath and Venning JJ, in Re Roslea Path Ltd (in liquidation) [2013] 1 NZLR 207 at [159]-[160]: [159] We consider that the use of an assessor might be appropriate in the rare case where it is inexpedient for an Associate Judge to embark upon a lengthy consideration of a substantial number of documents. The fact that an assessor's costs would need to be borne by the assets of the company in liquidation militates against the indiscriminate use of that process. [160] If a report were provided, it could do no more than to express an independent opinion on the reasonableness or otherwise of the fees claimed. The Court could not delegate its jurisdiction to an "assessor". Nor could it act on such a report without providing to the liquidator and any other interested parties who wished to be heard an opportunity to make further submissions. 48 In that case, the Court considered an application to approve the liquidator's remuneration prospectively. The relevant legislative scheme appears to have been different from the scheme applicable to the Halifax AU liquidation in significant respects. For example, at [98] of the Court's reasons, it is stated that "[i]n the case of prospective applications the Court only needs to be satisfied that the hourly rates to be charged are reasonable because the final remuneration, calculated on those rates (by their nature) require retrospective approval". 49 The liquidators proposed that the independent third party would only provide reasons in the event of reaching a different view to the liquidators as to particular aspects of remuneration claimed in the joint remuneration report. The liquidators submitted that the proposed process "is, in effect, a substitute for the review of the COI and COC which would not produce a report following their consideration of the remuneration sought" so that it is preferable that the independent third party prepare only a declaration in the form proposed (with brief reasons in the event of any disagreement) instead of a full report on remuneration. 50 I do not accept this submission. If the Court is to make orders for the adoption of the proposed process, it would seek to achieve something different from a substitute for review by the COI. Otherwise, the problem of how the liquidators' remuneration can be determined reasonably promptly by the Court will not be solved. To the extent that the Court's previous remuneration determination had regard to the COI's relevant resolutions, that did not detract from the Court's requirement to consider whether the remuneration is reasonable in accordance with s 60-12. Thus, in my view, the purpose of an independent third party review of the liquidators' remuneration is to satisfy the Court that the remuneration is reasonable in accordance with s 60-12 without further consideration by the Court, to the extent possible. 51 The independent third party's function under the proposed remuneration method order is limited to a review and preparation of a declaration, which I do not consider to be sufficient to enable the Court to make a remuneration determination without further work to comply with s 60-12. Accordingly, there is no utility in considering this proposal further.

Remuneration review proposal 52 The liquidators contended that the remuneration review proposal is a method that the Court may specify for working out the liquidators' remuneration within the meaning of s 60-10(3)(b). 53 I am not persuaded that this is correct because the purpose of the review would be to establish the reasonableness of the remuneration with a view to the Court then making a remuneration determination so that the liquidators may then be paid. A determination of the kind contemplated by s 60-10(3)(b) must follow upon the Court's consideration of the s 60-12 factors, as appears from the reasoning of Markovic J in Italian Prestige Jewellers, set out above. 54 The liquidators submitted that this problem is answered by the fact that the Court will instruct Mr Tesoriero to review the reasonableness of the liquidators' remuneration, including by having regard to the factors in s 60-12. However, that answer demonstrates the problem. The Court must have regard to whether the remuneration is reasonable in making the remuneration determination. An instruction to Mr Tesoriero to have regard to the s 60-12 factors is not sufficient to discharge the Court's obligation to have regard to whether the remuneration is reasonable in making a determination. 55 The fundamental problem with the remuneration review proposal (which I accept is very practical) is that it envisages payments to the liquidator without a relevant remuneration determination. Under the IPS, a remuneration determination is a precondition to the liquidators' receipt of anything other than minimal payments. 56 The liquidators referred to the broad power conferred by s 90-15 and, in particular, the power to require repayment of remuneration. However, on my reading of the IPS, this power is not designed to permit a scheme of remuneration whereby payments are made without a remuneration determination. Further, I am not persuaded that the broad power permits the Court to authorise remuneration on a basis that is inconsistent with the specific provisions of Div 60 of the IPS. Accordingly, I do not consider that this power assists the liquidators.

Appointment of referee under s 54A 57 In my view, this is an appropriate case for the exercise of the power conferred by s 54A to appoint a referee to inquire into a question in a proceeding. The relevant question is the reasonableness of the Halifax AU liquidators' remuneration from the beginning of September 2019. 58 I have previously noted the liquidators' preference for preparing a joint remuneration report covering their remuneration in the liquidations of Halifax AU and Halifax NZ. Having regard to the limitations on the powers of this Court, the liquidators will need either to isolate the work referable to the Halifax AU liquidation or propose a practical solution for identifying reasonable remuneration based on work that can properly be treated as work in relation to the Halifax AU liquidation, where that work is also work in relation to the Halifax NZ liquidation. I understand from Venning J's judgment "Re: Remuneration Method and Source of Funds" that the liquidators have already adopted a broad apportionment of their costs between the two liquidations which may be such a solution. 59 In Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2012] FCA 558; (2012) 203 FCR 520 at [35]-[36], Rares J explained the proper exercise of the s 54A power: [35] The discretion in s 54A(1) is one that must be exercised judicially, having regard to the subject matter, scope and purpose of the Federal Court Act itself: R v Australian Broadcasting Authority; Ex parte 2HD Pty Ltd (1979) 144 CLR 44 at 49-50 per Stephen, Mason, Murphy, Aickin and Wilson JJ. Thus, factors to which the court ordinarily would have regard in considering the exercise of the power to order a reference under s 54A(1) are: (1) the policy that the usual mode of trial is by judge alone: s 39; (2) the overarching purpose of the court's civil practice and procedure rules and the factors referred to in s 37M so far as they are relevant to the exercise of the discretion; (3) the legislative purpose for the recent introduction of the additional mode of trial for which s 54A provides. [36] An important principle of statutory construction is that it is quite inappropriate to read provisions, such as s 54A(1), that confer jurisdiction or grant powers to a court, by making implications or imposing limitations which are not found in the express words: Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 421 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ. The grant of power in s 54A is not confined to any particular situation, category of litigation or otherwise. However, other provisions in the Federal Court Act, such as ss 37M and 39, may affect the way in which the power in s 54A(1) may be or should be exercised. That is because of the initial policy expressed in s 39 and the subsequent decision of the Parliament in 2009 to broaden the modes of trial available in the court. 60 In Kadam and ors v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139; 252 FCR 298 at [57] and [58], Lee J stated: [57] … [I]n considering whether to make order a reference, the starting (and in many cases the finishing) point will be the consideration of the overarching purpose. Of course, s 37M(2) gives some guidance as to how this is done by setting out a number of objectives which, without limiting s 37M(1), comprise the following: (a) the just determination of all proceedings before the Court (s 37M(2)(a)) (Justice Factor); (b) the efficient use of the judicial and administrative resources available for the purposes of the Court, and the efficient disposal of the Court's overall caseload (ss 37M(2)(b)-(c)) (Efficiency Factor); (c) the disposal of the proceedings in a timely manner (s 37M(2)(d) (Timeliness Factor); and (d) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute (s 37M(2)(e)) (Cost-effectiveness Factor). [58] As can be seen, these four factors reflect what might be described as both party-centric and the macro considerations in relation to the administration of justice, to which I have already made reference. They are not, however, exclusive considerations and the considerations in s 37M(2) should not be treated as 'tick box'; a wider evaluative process is to be undertaken: see Irwin v Irwin [2016] FCA 1565 at [37] per Charlesworth J. 61 In this case, the considerations that justify the appointment of a referee are: (1) the pressing need to make a remuneration determination for the liquidators' remuneration from September 2019; (2) the impending need to make one or more remuneration determinations covering the period up to the final hearing in December 2020 in a timely manner; (3) the significant volume of work that has been and will be undertaken by the liquidators and, as a consequence, the relatively large task involved in determining whether the liquidators' proposed remuneration is reasonable; (4) the appointment of a referee will facilitate an efficient use of court resources, including for the purpose of determining the complex issues that will require resolution in this proceeding; (5) the expected costs of the referee are not unreasonable having regard to the size of the liquidation and the number of persons who are interested in ensuring that the liquidators are reasonably remunerated; and (6) in the circumstances of the case, the liquidators cannot practically or prudently obtain remuneration determinations except from the Court. 62 Accordingly, I will make orders for the appointment of a referee and consequential orders to facilitate the making of remuneration determinations under s 60-10(1)(c).

First to Fifth Representative defendants' expenses 63 On 18 February 2020, the Court made an order that the first to fourth representative defendants be indemnified in respect of their legal expenses reasonably incurred in so acting and that their legal expenses reasonably incurred in so acting were to be paid out of the annexure A and annexure B accounts. A similar order was made in relation to the fifth representative defendant on 3 April 2020. 64 The liquidators noted that, at the 22 May 2020 hearing, Mr Loo's counsel submitted that the reasonableness question should be the subject of independent assessment and not the subject of commentary by the liquidators. 65 Consequently, the liquidators proposed that the order identifying the sources of funds from which the liquidator is justified in making payments, should also state that those funds may be used to pay the legal expenses reasonably incurred by the defendants in acting as representative defendants "in the amount determined by Mr Tesoriero as being reasonable". 66 After the hearing, Mr Loo submitted that it is not necessary to formalise the review of the representative defendants' legal expenses and submitted that it is unnecessary for this review to be undertaken by Mr Tesoriero at this stage. Mr Loo submitted that he is content for the liquidators (rather than their solicitors) to review his legal expenses bearing in mind that: (1) the defendants have been appointed by the Court to act as contradictors representing specified classes of investors; (2) the orders made in this Court and the NZHC that the relevant representative defendants be indemnified in respect of their legal expenses reasonably incurred in so acting; and (3) the liquidators are members of ARITA and are therefore bound by the ARITA Code of Professional Practice whose operation is further informed by the Practice Statements which accompany it; (4) a review of the representative defendants' legal expenses by Mr Tesoriero at this stage is unnecessary and may result in undue expense particular where it is unclear whether such a review would require preparation of a formal report and it would be the liquidators or the Court that would be tasked with deciding to adopt, vary or reject any such report; (5) it would be inappropriate for the representative defendants legal costs to be subjected to a formal review process without a similar process for the liquidators' legal costs. 67 I accept that legal costs that are ultimately funded by the liquidation should be subjected to an equivalent level of scrutiny. This scrutiny should occur in the most cost effective manner. Having regard to Mr Loo's written submissions, I am not satisfied that an independent review of the representative defendants legal expenses is the most cost effective way of ensuring that the liquidation does not pay unnecessarily incurred expenses. Accordingly, I will not require the payment of those costs to be conditioned upon any determination of reasonableness by Mr Tesoriero. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

SCHEDULE OF PARTIES NSD 2191 of 2018 Defendants Fourth Defendant: ATLAS ASSET MANAGEMENT PTY LTD (ACN 607 442 679) Fifth Defendant: FIONA McMULLIN Sixth Defendant: ANDREW PHILLIP WHITEHEAD AND MARLENE WHITEHEAD IN THEIR CAPACITY AS TRUSTEES OF THE BEELINE TRUST Seventh Defendant: ANDREW PHILLIP WHITEHEAD