Approval of the trustee's remuneration
112 The applicants challenged the validity of the motion for approval of the Trustee's remuneration on two bases.
113 First they submitted that the motion was invalid because:
(1) the appointment of the minutes secretary and the President were invalid;
(2) the motion was proposed by Mr Ma whose appointment was invalid; and
(3) the purported exercise of the proxies in favour of the motion was invalid because:
(a) in respect of the ATO proxy, there was no debt owing to the ATO;
(b) in respect of the CBA proxy, it was given to the "Chairman of the meeting" but the Trustee had not been validly appointed as President;
(c) in respect of the Woollahra Council proxy, it was given to the "Chairperson/Minutes Secretary" neither of whom had been validly appointed;
(d) in respect of the Official Trustee, it was given to the minutes secretary whose appointment was invalid; and
(e) in respect of Barry and Board it was given to the President whose appointment was invalid and it specified that its debt was secured.
114 I have already found that the appointment of the minutes secretary was invalid. However, whether the appointment of the President was invalid depends on the voting method.
115 Assuming that Mr Ma in his capacity as minutes secretary proposed the motion approving the Trustee's remuneration in his capacity as proxy for the Official Trustee, which is an available inference, then for the reasons given at [104] above, pursuant to s 306(2), the proposing of the motion by Mr Ma in that capacity was not invalidated despite the defect or irregularity in his appointment.
116 As to the exercise of the proxies in favour of the motion:
(1) the ATO proxy was valid at the time it was provided and relied on;
(2) the CBA proxy was given in favour of the chairman. The President, once appointed, would be required to exercise the vote in accordance with the terms of the proxy;
(3) the Woollahra Council proxy was given to the "Chairperson/Minutes Secretary". It was exercised by the President. The President, once appointed, would be required to cast the vote in accordance with the terms of the proxy;
(4) the Official Trustee's proxy was given to the minutes secretary. For the reasons given at [104] above, pursuant to s 306(2), the exercise of the proxy in conformity with its terms by Mr Ma in his capacity as minutes secretary was not invalidated despite the defect or irregularity in his appointment; and
(5) Barry and Board's proxy indicated that their debt was secured and accordingly they were not entitled to vote at the Creditors' Meeting.
117 Even if the Trustee's appointment as President was not valid I would in any event find, for the same reasons as set out in [104] above that, despite the defect or irregularity in his appointment, his voting for the remuneration motion by exercising in good faith the proxies in favour of the chairperson would not be invalidated. As I have found those votes were cast in conformity with the terms of each of the proxies and there is no evidence that the Trustee did not act in good faith in casting those votes.
118 The applicants submitted that the Trustee did not have sufficient proxies to defeat Ronald Coshott's nomination as President and that Ronald Coshott would not, if he were President, have proposed the motion for approval of the Trustee's remuneration. The transcript of the Creditors' Meeting discloses that Ronald Coshott objected to the remuneration resolution when proposed but there is no evidence that, had he been President, he would not have proposed that motion. It is impossible to speculate on what would have occurred at the Creditors' Meeting had Ronald Coshott been elected as President. The President must observe the requirements of the Act in conducting creditors' meetings and must, in relation to proxies in his or her favour, vote as directed. There is little discretion to be exercised by a President.
119 Those proxies that were entitled to be exercised, that is all those other than the proxy given by Barry and Board, gave specific directions as to how to vote and each directed that the proxy holder should vote in favour of the motion approving the Trustee's remuneration. The vote was taken on a poll. No issue was taken with the method by which the vote was taken. Fewin and Ronald Coshott abstained. The motion was passed by a majority of creditors in number and value present in person or by proxy but including Barry and Board. Absent Barry and Board's vote the outcome is the same. That is, it remains the case that a majority of creditors in number and by value voted in favour of the motion.
120 Secondly, the applicants submitted that there was doubt as to whether the creditors had power to approve the Trustee's remuneration and, if they did, whether ultimately it is of any utility given that a taxation process of that remuneration has commenced. The applicants' argument in that regard relies on the judgment in Doolan v Dare. They submitted that from May 2003:
(1) creditors had power to fix remuneration under s 162(1) from time to time;
(2) where remuneration was not fixed by the creditors the trustee was entitled to be remunerated pursuant to s 162(4) and reg 8.08 by reference to a scale;
(3) regulation 8.09 provided that where a trustee claims remuneration under s 162, a bankrupt or a creditor may request a taxation within 28 days of being notified in writing or becoming aware of the amount of the claim;
(4) section 64U of the Act prescribed certain disclosures to be made in relation to a trustee's remuneration at the first meeting of creditors and then at subsequent meetings but is not of itself the source of entitlement to remuneration which derives from s 162 and also generally;
(5) section 162(6A), which was introduced on 5 May 2003, requires the trustee to give, in relation to his or her remuneration, such notices as may be prescribed by the regulations. Regulation 8.12 prescribes those notices that must be given to the bankrupt and creditors;
(6) the Full Court in Doolan v Dare said that in light of the introduction of s 162(6A) it may well be that the creditors have power to fix remuneration for services provided after that date not only prospectively but retrospectively in the event that "the trustee has not performed the duty imposed by the Act to provide notice of the intended basis of remuneration". In other words, the applicants submitted that the Full Court appears to have taken the view that prior to May 2003 the creditors' power under s 162 was only to fix remuneration prospectively which would be consistent with the obligations on the trustee to make disclosure under s 64U of the Act;
(7) the reference in reg 8.09 to a power to seek a taxation where the trustee claims remuneration under s 162 should be understood as drawing a distinction between the fixing of remuneration in advance under s 162(1) and the claiming of remuneration (retrospectively) in accordance with that fixing, the latter of which triggers the right to seek a taxation. The applicants rely on Doolan v Dare at [27] where they say the Full Court seems to have contemplated such a regime at least in the context of remuneration pursuant to s 162(4);
(8) viewed in this light the 2003 amendments introduced a requirement by reg 8.12 for prospective notices where the trustee seeks to be remunerated and thus enlivens the power under s 162(1) or s 162(4) (reg 8.12(a)) and retrospective notices where the trustee claims remuneration in accordance with that power as enlivened (or to be enlivened) (reg 8.12(b)). It is then only a notice of a retrospective claim that enlivens the right to seek taxation of which notice must be given under reg 8.12(c);
(9) it follows that the creditors had no power to approve remuneration retrospectively whether under s 162(1) or at all.
121 Further or in the alternative the applicants submitted that whatever the position in relation to s 162(1) of the Act a fixing of remuneration by the creditors, whether prospectively or retrospectively, does not oust the obligation to give ongoing disclosure nor the entitlement of the bankrupt or a creditor to seek a taxation of remuneration claimed by the trustee. They contend that position appears to have been contemplated by the Trustee who, at the time of disclosing his remuneration and indicating that he would seek a resolution to approve his remuneration, gave notice of the right to seek taxation pursuant to reg 8.09.
122 The applicants' contention is, in effect, that the creditors had no power to approve the Trustee's remuneration. They contend that the creditors' power pursuant to s 162(1) is to fix remuneration prospectively at a rate or rates notified by the trustee. Once fixed, a trustee can then notify a claim for his or her remuneration at the rate fixed by the creditors or, if it is not so fixed, at the prescribed rates. The applicants say that what should occur is that the trustee provides disclosure of his claim for remuneration together with notification of the right to seek a taxation in accordance with the Regulations, that if there is no application for a taxation of the remuneration claimed within the prescribed 28 day period the trustee is then able to pay himself. However, if taxation is sought by a creditor or the bankrupt then the trustee must await the outcome of the taxation process and, at its conclusion, can pay himself the taxed amount. The applicants submitted that their concern is that, because the Trustee's remuneration has been approved, he can pay himself the approved amount so that any taxation would be of no effect and the right to seek taxation would be lost.
123 The Trustee submitted that the Creditors' Meeting was not a first meeting of creditors. To that extent, s 64U(8) applied requiring the President to "request the trustee to lay before the meeting a statement of remuneration drawn by the trustee from the funds of the bankrupt's estate before the meeting was held" and for the Trustee to "comply with that request". He took the Court to the December Creditors' Report and the remuneration report annexed to it which, he contended, complied with his obligations of disclosure under the Act and the Regulations as they apply to the Coshott Estate.
124 The Trustee further submitted that there was no resolution as contemplated by s 162(1) that sought to fix the Trustee's remuneration at any time prior to the Creditors' Meeting and that the Trustee has not drawn any remuneration. The Trustee submitted that, until remuneration has been fixed by the creditors or by an appropriately qualified taxation, a trustee cannot draw down his or her remuneration. That is, contrary to the applicants' submission, until it is approved a trustee cannot take his remuneration.
125 The Trustee contended that the obligation to provide a notice under reg 8.12(a) was, as noted by the Full Court in Doolan v Dare, an ongoing obligation not limited to the first creditors' meeting and that s 162(1) permits the creditors to fix a trustee's remuneration "from time to time". He submitted that there was nothing in s 162(1) that stated that remuneration can only be fixed prospectively.
126 In some respects the applicants' challenge to the validity of and to the creditors' power to approve the resolution concerning the Trustee's remuneration is moot and, as they submitted, the question of whether the resolution approving the remuneration is valid is of little, if any, practical effect. This is because there is evidence before me that the first applicant, Fewin, has sought a taxation of the Trustee's claim for remuneration. Counsel for the Trustee also informed the Court that, despite the approval given by the Creditors' Meeting, no remuneration had been drawn consequent upon that resolution. Notwithstanding these events, where the parties differ is on the issue, which is not before me for determination, of whether the fact of taxation means that a trustee is precluded in the interim from relying on the creditors' approval and drawing down the remuneration. Hence the challenge to the resolution approving the Trustee's remuneration is pressed.
127 The Trustee is the fourth trustee of the Coshott Estate. The Creditors' Meeting was not the first meeting of creditors. As noted, counsel for the Trustee informed the Court that no motion fixing the Trustee's remuneration pursuant to s 162(1) had been put to the creditors of the Coshott Estate prior to the Creditors' Meeting. As required by s 162(6A) of the Act and reg 8.12 the Trustee provided in his remuneration report, annexed to the December Creditors Report, a notice of the basis on which he sought to be remunerated, the type of work undertaken, the number of hours charged by each person, their applicable hourly rates and the total remuneration claimed. Notice was also given of the bankrupt's and creditors' rights to request the claim be taxed within 28 days of receipt of the notice.
128 However the terms of the motion put to the meeting do not seek to fix the basis for the Trustee's remuneration prospectively but seek approval of the Trustee's claim for remuneration on the basis of hourly rates not previously approved for work undertaken from 21 March 2013 to 14 October 2015. The issue for resolution is whether s 162(1) permits such retrospective approval. In my opinion it does not.
129 Section 162 is the source of the entitlement to remuneration. At the relevant time, it provided that the remuneration of the trustee of a bankrupt estate may be fixed by resolution of the creditors from time to time (subs (1)). I do not accept, as submitted by the Trustee, that there is no temporal limit on the ability to fix a trustee's remuneration. The scheme for fixing of a trustee's remuneration pursuant to s 162 operates prospectively. The creditors, or a committee of inspection, have the power pursuant to s 162(1) to fix a trustee's remuneration. At the time, s 64U prescribed the details that a trustee had to provide in relation to the fixing of his or her remuneration at the first Creditors' Meeting pursuant to s 162(1). Where a trustee's remuneration is not fixed by the creditors a trustee is to be remunerated as prescribed by the Regulations.
130 That the fixing of a trustee's remuneration is prospective is consistent with the objective, as observed by the Full Court in Doolan v Dare at [36], that the question of remuneration is to be settled early in the administration and further that the creditors should be aware of the basis for a trustee's remuneration and, if possible, its likely impact on the bankrupt's estate. Despite its comments in relation to the impact of s 162(6A) and reg 8.12, which I address below, it is also consistent with the Full Court's construction of s 162(1) in Doolan v Dare based on the facts of that case. Once a trustee's remuneration is fixed, he or she is then required to notify any claim for remuneration based on that approval. The right to a taxation arises consequent on that notification.
131 In my opinion, the terms of s 162(6A) and reg 8.12 do not displace this conclusion. Section 162(6A) imposes a continuing obligation on a trustee to provide the information prescribed by reg 8.12 in relation to his or her remuneration. That is, as noted by the Full Court in Doolan v Dare, the requirement for that information is not confined to the first creditors' meeting. But that is not inconsistent with a requirement that remuneration be approved prospectively.
132 Regulation 8.12(a) requires notification of the basis and method on which a trustee seeks to be remunerated and, where appropriate, an estimate of the expected level of remuneration. It is prospective in its language. The question that arises is why, in circumstances where a trustee's remuneration has been fixed pursuant to s 162(1), this ongoing obligation would exist. In my opinion, one could envisage a situation where a trustee seeks to change the basis for his or her remuneration going forward. Further, it may be necessary that in providing notice of a claim for remuneration pursuant to reg 8.12(b) the creditors need to be reminded of the basis for that claim as previously approved under s 162(1) or as applies under s 162(4) as the case may be.
133 Regulation 8.12(b) requires a trustee to provide certain information where a claim for remuneration is made by reference to an hourly rate. That requirement is consistent with a claim based on a prior approval under s 162(1) or where a trustee is to be remunerated pursuant to s 162(4).
134 In obiter dicta the Full Court in Doolan v Dare remarked at [34] that perhaps from the time of introduction of s 162(6A) and reg 8.12 the creditors may have power to fix remuneration for services provided after 5 May 2003 not only prospectively but retrospectively where a trustee has not observed the duty imposed by the Act to provide notice of the intended basis of remuneration. Neither party made any submission as to whether and, if so why, I would or would not be persuaded by the Full Court's comments.
135 That observation by the Full Court was made in the context of commenting on the amendments to s 162 constituted by the introduction of subs (6A) and reg 8.12 in circumstances where the parties had agreed that they did not have any direct impact on the construction of ss 64U and 162 of the Act on the facts of the case before the Court and where no submissions were made about the impact of s 162(6A). The Full Court did not explain why the amendments may change the nature of the creditors' power under s 162(1) so that it could also be exercised to approve remuneration retrospectively. At [35] to [38] the Full Court continued:
35. In reconciling the terms of s 64U and s 162 of the Act it is necessary to accept that in some degree the Act has left at large the operation of those provisions. However, it is possible to discern, by necessary implication, how s 64U and s 162 are intended to apply.
36. The object of the duty imposed on the trustee to provide a notice to the creditors, and the bankrupt, of the proposed basis for remuneration is to have that question settled early in the administration and, if possible, at the first meeting of creditors. Of course, upon appointment as trustee of a bankrupt estate the trustee is entitled forthwith to the minimum remuneration fixed by s 161(B).
37. If the trustee has complied with the Act by providing such a notice and within a reasonable period thereafter the creditors have not acted to fix another basis of remuneration in response to that notice it may be taken that the trustee will be entitled to claim remuneration on the basis prescribed by the regulations pursuant to s 162(4).
38. However, if the trustee fails to carry out the duty to provide the notice to creditors, and to the bankrupt, it may be the intention of the Act that the creditors be empowered by s 162(1) to fix the basis of remuneration both prospectively and retrospectively until such time as the required notice is given by the trustee, at which point the creditors will have a reasonable time to have the trustee convene a meeting of creditors pursuant to s 64(1) of the Act to consider a resolution to fix the basis for remuneration pursuant to s 162(1).
136 What their Honours seem to suggest was that the retrospective power which may be available was a power which could be exercised by the creditors where no notice of the proposed basis of remuneration had been given by a trustee and which was exercisable until such time as the requisite notice is given.
137 The basis upon which the Full Court suggests that the meaning of s 162(1) might have changed to permit retrospective approval is a result of the introduction of s 162(6A) and reg 8.12. But there is nothing in the terms of subs (6A) which could lead to a construction of s 162(1) that differed from that which otherwise applied.
138 Thus I would infer that their Honours comments arise from the terms of reg 8.12. If that is the case the result is that reg 8.12 would be construed in a way that is inconsistent with the Act or, alternatively, the regulation would be used to construe the Act such that a bottom up approach was adopted in a way not permitted: see Federal Commission of Taxation v Macoun (2014) 227 FCR 265 at [40]. That cannot be what their Honours intended.
139 While the views of a Full Court should be given the most careful consideration, with the utmost respect, I am not persuaded that I should adopt their Honours obiter comments in relation to the effect of the introduction of s 162(6A) and reg 8.12 on the construction of ss 64U and 162(1) of the Act.
140 In my view, the introduction of s 162(6A) and reg 8.12 do not change the position. A trustee should provide notice of the basis for his remuneration and may seek creditor approval to proceed to charge on that basis pursuant to s 162(1). The approval thereby provided is prospective and entitles a trustee to proceed to charge for his or her services going forward on that basis. In the absence of that approval and, until such approval is given, a trustee is to be remunerated pursuant to s 162(4) of the Act.
141 Finally, I accept the applicants' submission that whatever the position is in relation to s 162(1), a resolution passed by creditors approving a trustee's remuneration, whether prospectively or retrospectively, does not oust the trustee's obligation to give ongoing disclosure nor the entitlement of the bankrupt or a creditor to seek a taxation of the remuneration claimed by the trustee.
142 It follows from the matters set out above that, while the motion for approval of the Trustee's fees was not invalidated by reason of the way in which it was put and passed, the creditors in fact had no power to approve the Trustee's claim for remuneration retrospectively. For that latter reason I must find that the motion to approve the Trustee's remuneration was not valid.