Deputy Commissioner of Taxation v Shac Communications Pty Ltd

Background 3 On 21 December 2012, Shac Communications was incorporated and, at all times thereafter, Ms Simone Holzapfel has been its sole director. 4 On 24 December 2012, CGW Settlements Pty Ltd settled a trust known as the Shac Trust (the Trust) of which Shac Communications became its trustee. Ms Holzapfel was the appointor of the Trust. 5 As mentioned, on 16 November 2018, Mr Hellen was appointed as the liquidator of Shac Communications. It was wound up on an application by the Deputy Commissioner of Taxation. 6 Mr Hellen is an insolvency practitioner who is well known to, and respected by, the Court, and he has standing as a liquidator of some 30 years. 7 Prior to its being wound up, Shac Communications operated a public relations and communication business. From no later than 2015, it conducted that business through the Trust. Further, since that time, it has only acted as the trustee of the Trust. 8 In the course of his investigations, Mr Hellen has discovered that nearly all of the company's assets available in the liquidation are held by it as trustee and nearly all of its liabilities were incurred as trustee. 9 Four of the assets held by Shac Communications as trustee are loans owing to it as trustee by Ms Holzapfel and related corporate entities. Mr Hellen has recovered the amount of $121,620 from Ms Holzapfel and there are currently proceedings on foot against the related entities seeking to recover other loans totalling approximately $250,000. 10 All necessary parties to this application have been served. No creditor has objected to Mr Hellen's application for remuneration and no interested party opposes his appointment as receiver and manager of the Trust assets.

Approval of remuneration 11 By r 9.2(2) of the Federal Court (Corporations) Rules 2000 (Cth), at least 21 days before the filing of this application, Mr Hellen was required to serve a notice in accordance with Form 16 and a copy of his affidavit in support of this application on the following persons: each creditor who was present, in person or by proxy, at any meeting of creditors; each member of any committee of inspection; where there is no committee of inspection, and no meeting of creditors has been convened and held, each of the five largest creditors by amount of debt; and any shareholder with at least 10% shareholding. There has been no meeting of creditors and, therefore, no creditors attended any meeting. There is also no committee of inspection. 12 In these circumstances, the application was required to be served on the largest five creditors and any shareholder with at least a 10% shareholding. Each of those creditors has been served and Ms Holzapfel, the only shareholder of Shac Communications, has also been served. 13 Twenty-one days have elapsed since the service on those parties, and none has given any notice of objection. ASIC has been informed of the application and it too has indicated that it intends not to raise any objection.

Compliance with s 60-10 14 Mr Hellen relies upon s 60-10 of the Insolvency Practice Schedule (Corporations) (IPS), being Sch 2 to the Corporations Act 2001 (Cth) (the Act) for the purposes of obtaining an order that he is entitled to his remuneration. It provides: Remuneration determinations (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. … (3) 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. (Note omitted). 15 In the present case, s 60-10(1)(c) is the appropriately applicable rule and Mr Hellen seeks an order for payment in a specific amount as contemplated by s 60-10(3)(a). 16 Section 60-12 of the IPS prescribes the matters which the Court must take into account in making a remuneration determination and reads as follows: In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60-11, 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 work; (k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers; (l) if: (i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and (ii) the matter is, or includes, remuneration of the external administrator; the contents of the report on the review that relate to that matter; (m) any other relevant matters. 17 There is no need to assay in any detail the principles relating to making orders approving a liquidator's remuneration. They are well known and were accurately identified by Mr Downes of Counsel in his careful written submissions as follows: (a) the overarching principle is that a liquidator or receiver is entitled to fair and reasonable remuneration [Conlan v Adams (2008) 65 ACSR 521, 529 [28]]; (b) the question of fairness and reasonableness must be decided by the Court, even in the absence of a contradictor [ASIC v Groundhog Developments Pty Ltd [2011] QSC 263 [13]]; (c) such an application is to be determined in a summary way in which the rules of evidence are not strictly observed. The applicants bear the onus of establishing their entitlement [Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96, 102]; (d) there must be evidence before the Court which shows that the work done was appropriate and necessary [Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96, 104]; (e) the detail of evidence adduced should be proportionate to the size of the administration and the amount of work done [Re Stockford Ltd; Korda and Anor (2004) 52 ACSR 279, 295]; (f) Mr Hellen's expressed views about the reasonableness of the remuneration is relevant but not decisive. While the Court does not gainsay the considered oath of an officer of the Court, it does not uncritically accept such assertions [Owen, in the matter of Rivercity Motorway Pty Ltd (admins apptd) (recs and mgrs. apptd) v Madden (No 2) [2012] FCA 312 [26]]; (g) the determination of whether the remuneration claimed is fair and reasonable does not call for an item-by-item analysis of the work claimed that would be involved in the taxation of solicitors' costs [ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2004] QSC 133 [16]]; and (h) even where there is detailed evidence before the Court, there is no touchstone or reliable independent measure of reasonableness other than judicial impression [Owen, in the matter of Rivercity Motorway Pty Ltd (admins apptd) (recs and mgrs. apptd) v Madden (No 2) [2012] FCA 312 [20]]. (Footnote references included in text).

Consideration 18 By this application, Mr Hellen first seeks approval of his remuneration on a time-recorded basis. He and his staff have charged for their work in six-minute units and have recorded the details of the time charges in an electronic system. 19 The remuneration claimed by Mr Hellen is supported by a detailed and itemised time sheet report which appears as an annexure to his affidavit sworn 27 February 2024. Each entry includes a description of the type of work which has been performed, the time spent, and the amount charged in accordance with the usual rates applied by Mr Hellen's firm. 20 Through that process Mr Hellen has demonstrated that he and his staff have worked for approximately 230 hours for a total remuneration of $88,826.50. 21 In relation to the matters referred to in s 60-12 of the IPS, the following observations can be made: (a) As to ss 60-12(a) - (c) and (j), it is established by the evidence that Mr Hellen has summarised the work which has been performed by him and his staff and has itemised it in detail. It can also be accepted that the work was self-evidently necessary. It included performance of the statutory tasks, conducting investigations, and commencing litigation to recover debts from related parties. It is noted that the work has been performed over a period of five years. Mr Hellen has deposed, and it should be accepted, that in relation to the necessary work, the less complex work was performed by junior staff members and the more complex work was performed by senior staff. He further deposed, and it too should be accepted, that unnecessary work was not performed. (b) In relation to s 60-12(d), there is no relevant challenge to the quality of Mr Hellen's work. (c) In relation to ss 60-12(e) and (f), there was no element of complexity and nor were extraordinary issues encountered in this liquidation. There is nothing to suggest that the current liquidation was more or less complex than a typical one. (d) In relation to s 60-12(g), concerning the risk of the work, it is noted that Mr Hellen commenced litigation to recover debts from Ms Holzapfel and related entities without the benefit of assets in the administration from which he might indemnify himself. Very properly, Mr Hellen accepted that, whilst there existed some risk, it was not so obvious or substantial that he could say confidently that he took materially higher risks than usual. (e) In relation to s 60-12(h) and the value of property under his control, the current assets which he has gathered total approximately $370,000. (f) As to s 60-12(i), which concerns the creditor pool and its complexity, this element is only slightly relevant. The creditor pool is small and there is nothing to suggest that the creditors are acting unreasonably or adding complexity or costs to the administration. (g) No issue arises in relation to s 60-12(k) in relation to dealing with other controllers. (h) Similarly, no issue arises under s 60-12(l) in relation to dealing with a review into any matter relating to the administration. 22 As has been indicated above, Mr Hellen is a noted and well-respected liquidator whose work is familiar to the Court. He has a high reputation arising from his work as an insolvency practitioner over a period of 30 years. In these circumstances it is appropriate to accept the following evidence given by him: 28. In my experience as a registered liquidator, and from my knowledge and supervision of the work undertaken during the relevant period, I am satisfied that the time recorded for … each of the tasks is commensurate with what was required to be undertaken and the records are accurate. 30. I am also satisfied that the quantum is reasonable having regard to the asset and creditor position of each company. 31. In coming to that view, I confirm that I specifically reviewed the time entries. 23 It is, therefore, appropriate to order that Mr Hellen receive the remuneration which he seeks in the sum of $88,826.50 plus GST.

The appointment of Mr Hellen as a receiver 24 Clause 16.3 of the trust deed of the Trust provides an indemnity for debts incurred by the trustee in the course of their trusteeship: 16.3 In addition to any indemnity or reimbursement allowed by law or by any other provision of this deed, the Trustee may reimburse itself or pay or discharge out of the Fund and any revenue derived from the Fund all expenses incurred by it in acting or purporting to act as Trustee. 25 The trust deed also provides for the removal of the trustee where, if it is a company, it becomes insolvent. In that respect, cl 19.3 provides: 19.3 The Trustee is deemed to be automatically removed if the Trustee: … (d) becomes Insolvent. 26 Here, that clause was triggered and Shac Communications was removed from its position as trustee under the deed. However, no attempt has been made to appoint a new trustee and Shac Communications remains in possession of the Trust assets, though now only as a "bare trustee". It has no ability to exercise its erstwhile right of indemnity or exoneration out of the Trust assets as those rights evaporated upon its removal. It follows that Mr Hellen, as liquidator of Shac Communications, has no power which he might exercise through the company to enforce the rights of exoneration or indemnity. He, therefore, asks that the Court appoint him a receiver by invoking its powers under s 57 of the Federal Court of Australia Act 1976 (Cth). That section provides: (1) The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. … 27 The principles relevant to the appointment of liquidators of trust companies as receivers are relatively well settled and were set out in the erudite observations of Moshinsky J in Re Cremin, Brimson Pty Ltd (in liquidation) (2019) 136 ACSR 649, 655 - 656 [48] - [51] as follows: Applicable principles [48] A company that is the trustee of a trading trust has a right of indemnity to resort to the trust assets to vindicate its right to be exonerated from a liability that it has incurred in the course of carrying out trust business. In circumstances where such a company goes into liquidation, its right of indemnity and accompanying equitable lien over the trust assets endures, notwithstanding that the company has been removed as trustee of the trust and only holds the trust assets as a bare trustee: see Jones (in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd (in liq)) v Matrix Partners Pty Ltd (2018) 260 FCR 310; 354 ALR 436; 124 ACSR 568; [2018] FCAFC 40 (Jones v Matrix) at [85], [142], [198]. [49] There has, until recently, been a difference of opinion as to whether, in such circumstances, the liquidator's power to sell the "property of the company" in s 477(2)(c) of the Corporations Act permits him or her to sell trust assets: see Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]. It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust's property without order of the Court, or by appointment of a receiver over the trust assets: see Jones v Matrix at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 103 ACSR 401; 291 FLR 17; [2014] NSWSC 1484 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. The rationale for this position is that, on a proper understanding, the trust assets are not the "property of the company", but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: see Jones v Matrix at [89]. Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company's lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c). [50] The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones v Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors: see Jones v Matrix at [142] per Siopis J; Amirbeaggi (in her capacity as liquidator of Simpkiss Pty Ltd (in liq)) v Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Amirbeaggi); Taylor (in his capacity as CJ & KL Bond Super Pty Ltd (in liq)) v CJ & KL Bond Pty Ltd (in liq) (as trustee for the CJ & KL Bond Superannuation Fund) [2018] FCA 1430 (Taylor v CJ & KL Bond Super Pty Ltd); Staatz (as liquidator of Wollumbin Horizons Pty Ltd (in liq) v Berry (No 3) [2019] FCA 924. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones v Matrix at [91], [152], [198]. [51] The proceeds from an exercise of a corporate trustee's right of exoneration may only be applied in satisfaction of the trust liabilities to which that right relates: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 368 ALR 390; [2019] HCA 20 (Carter Holt) at [40] per Kiefel CJ, Keane and Edelman JJ; at [92] per Bell, Gageler and Nettle JJ; at [106] per Gordon J. Thus, the liquidator of a (former) corporate trustee may only apply the proceeds of a sale of trust assets to satisfy debts owed to trust creditors (as opposed to general creditors). This includes the costs of the liquidation (including the liquidator's remuneration) because such costs constitute debts incurred by the company in discharging the duties imposed by the trust: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 110; 7 ACLR 873 at 883 per King CJ; Jones v Matrix at [105] - [106]. In circumstances where a company has only ever acted as a trustee of one trust and that has been the totality of its affairs, no issue arises as to the application of trust assets to general creditors because all of the company's creditors are trust creditors. In this situation, the proceeds from the exercise of the right of exoneration are to be distributed to the trust creditors in accordance with the order of priority prescribed by the Corporations Act: Jones v Matrix at [100] - [108] per Allsop CJ; see also Carter Holt at [93] - [96] per Bell, Gageler and Nettle JJ; at [111], [156] - [158] per Gordon J. 28 It is undoubted that those principles apply in the present case. It is obvious that Mr Hellen, as the liquidator of Shac Communications, must sell the assets of the Trust to meet the company's liabilities to its creditors which it incurred in the course of the performance of its trust duties. As mentioned, by reason of its removal as trustee, Shac Communications has no right which might now be exercised to sell the Trust assets. For that reason, the appointment of Mr Hellen as receiver is necessary to facilitate the completion of the liquidation. 29 It is undoubted that Mr Hellen is the appropriate person to be appointed as the receiver. He has had control of the company for the last five years and is aware of its financial circumstances, such that it is cost effective that he be appointed. 30 It is also noted that he is the only person who consents to being appointed by the Court as the receiver and he is unaware of any conflict or reason why he should not be appointed. 31 In those circumstances, orders ought be made appointing him receiver in the usual form. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.

SCHEDULE OF PARTIES QUD 501 of 2018 Applicant: BRADLEY VINCENT HELLEN