First Plaintiff v First Defendant

2 Mr Fitzgerald has requested that, pursuant to r 9.2(4)(b) of the Supreme Court (Corporations) Rules 2013 ('Corporations Rules'), his application be dealt with in the absence of the public and without any attendance by him or on his behalf. Mr Fitzgerald also seeks a direction under s 90-15 of the Practice Schedule that compliance with r 9.2(2)(a) of the Corporations Rules be dispensed with.

3 Finally, Mr Fitzgerald seeks an order that the costs of his application be paid out of the assets of the first defendant as a priority amount.

4 Mr Fitzgerald relies on his affidavit sworn 3 December 2020 ('the Fitzgerald Affidavit') and the affidavit of Mr Mitchell Kenneth Bascomb affirmed on 11 January 2021 ('the Bascomb Affidavit').

(a) dispensed with compliance with r 9.2(2)(a) of the Corporations Rules;

(b) acceded to Mr Fitzgerald's request that his application be considered and determined 'on the papers'; and

(c) approved Mr Fitzgerald's remuneration in the sum of $442,567.95 (inclusive of GST) for all work performed in relation to his appointment as SPL of Pluton for the period 6 September 2018 to 16 November 2020.

6 Mr Fitzgerald seeks relief from the notice requirements of r 9.2(2)(a) of the Corporations Rules.

7 Rule 9.2(2) provides that, at least 21 days before filing a remuneration application, an external administrator must serve a prescribed notice of their intention to apply for a remuneration determination on the following:

(a) each creditor who was present, in person or by proxy, at any meeting of creditors;

(b) each member of any committee of inspection;

(c) if there is no committee of inspection, and no meeting of creditors has been convened and held - each of the largest (measured by amount of debt) creditors of the company; and

(d) each member of the company whose shareholding represents at least 10% of the issued capital of the company.

8 Rule 9.2(3) then gives those in receipt of the external administrator's notice 21 days to object to the remuneration claimed, stating the grounds of the objection. If the external administrator does not receive a notice of objection within the 21 day period, r 9.2(4) provides that the external administrator may file an affidavit setting out the details of their notice to the relevant categories of creditors and members, stating that no notice of objection has been received and requesting that the application be dealt with in the absence of the public and without any attendance by or on behalf of the external administrator.

(a) over the course of the external administration of Pluton, eight meetings of creditors have taken place at which 192 creditors, cumulatively, attended;

(b) the first meeting of creditors took place on 18 September 2015 and the most recent meeting of creditors on the 14 February 2018;

(c) in his opinion, it would be impractical and unduly costly to identify all creditors who attended any of the meetings of creditors;

(d) Pluton has no committee of inspection; and

(e) he intends to give notice of his remuneration application to each of the five largest creditors of Pluton (measured by amount of debt).

10 Mr Bascomb deposes that on 3 December 2020 Mr Fitzgerald's remuneration application and supporting documents were served on the five largest creditors of Pluton and the single shareholder holding at least 10% of the issued share capital of Pluton. Mr Bascomb states that as at 11 January 2021, neither Mr Fitzgerald's firm nor his solicitors had received any response from those creditors or the shareholder.

11 Mr Bascomb further deposes that on 3 December 2020 and 11 January 2021 respectively, a copy of Mr Fitzgerald's remuneration application and supporting documents were served on ASIC and the incumbent liquidator, PricewaterhouseCoopers ('PWC').

12 Rule 1.3 of the Corporations Rules provides that the other Rules of Court apply to a proceeding in the Court under the Act, so far as they are relevant and not inconsistent with the Corporations Rules. Rule 2.04 of the Supreme Court (General Civil Procedure) Rules 2015 provides that the Court may dispense with compliance with any of the requirements of those Rules, either before or after the occasion for compliance arises. There is no equivalent or inconsistent rule in the Corporations Rules.

13 I am satisfied that in the circumstances of this application it is appropriate that Mr Fitzgerald not be required to comply with r 9.2(2)(a).

14 Mr Fitzgerald has not received any relevant objections to his remuneration application from the creditors or the shareholder who were put on notice of his application. I am satisfied that it is appropriate that Mr Fitzgerald's application be determined 'on the papers' without his attendance and in the absence of the public.

15 On 5 September 2018, Ziziphus Pty Ltd and Celtic Capital Pty Ltd, creditors of Pluton, applied to this Court for orders appointing Mr Fitzgerald as SPL of Pluton. Since 2013 until the time of this application, Pluton had been subject to multiple external administrations of varying nature and duration. In August 2016 Pluton was placed into liquidation. Mr Marsden and Mr Vickers of PWC were the appointed liquidators ('PWC Liquidators'), having formerly been the administrators of Pluton ('PWC Administrators').

16 On 6 September 2018, the Court ordered that Mr Fitzgerald be appointed as SPL of Pluton pursuant to s 472(1) of the Act ('the 6 September 2018 Order'). The purpose of the appointment is to investigate and prosecute, and to seek an extension of the time for prosecution of, claims by, or on behalf of, or for the benefit of Pluton (including, without limitation, conducting public examinations under ss 596A and 596B of the Act), except for prosecuting any proceeding filed by the PWC Liquidators on or prior to 7 September 2018.

17 As a result of the operation of s 588FF(3)(a) of the Act, the final day to apply to set aside relevant voidable transactions was 8 September 2018, two days after Mr Fitzgerald's appointment. Upon his appointment Mr Fitzgerald instructed solicitors to make an application under s 588FF(3)(b) of the Act to extend the period within which applications to set aside voidable transactions could be made. That application was made in Supreme Court proceeding number S ECI 2018 01192.

18 On 12 September 2018 Mr Fitzgerald caused a circular to be sent to all creditors of Pluton notifying them of his appointment and informing them that he had instructed his solicitors to commence Supreme Court proceeding number S ECI 2018 01192.

19 On 26 October 2018, the Court ordered that the time to bring any voidable transaction claim be extended to 30 June 2020.

20 Mr Fitzgerald then took steps to investigate and prosecute any voidable transaction claims, including reviewing Pluton's books and records and considering potential claims identified by the PWC Administrators in their s 439A Report.

21 On 19 December 2019, Mr Fitzgerald caused demands to be sent to a number of creditors seeking recovery of alleged voidable preference payments. Members of Mr Fitzgerald's team engaged in discussions and negotiations with those creditors, which included searching for and providing further information and documents.

22 In the period from January to March 2020, Mr Fitzgerald instructed his solicitors, Holding Redlich, to prepare final demands in relation to some unresolved claims.

23 Some matters were settled with recoveries made prior to the expiry of the limitation period on 30 June 2020. Three legal proceedings were filed in this Court and served, all of which remained on foot as at 3 December 2020.

24 By 16 November 2020 Mr Fitzgerald had recovered approximately $678,000 from the settlement of voidable transactions claims. Mr Fitzgerald anticipates that the maximum recoveries in relation to the voidable transaction claims total $1,809,100.

25 The remuneration Mr Fitzgerald seeks represents 26% of the maximum amount recoverable from nineteen voidable transactions claims that he has identified and pursued. It represents a significantly higher proportion on the funds recovered as at the date of Mr Fitzgerald's application.

26 The main tasks that Mr Fitzgerald has completed since appointment as SPL were summarised in the Fitzgerald Affidavit as follows:

(a) issuing initial correspondence to the creditors of Pluton providing notice of his appointment and the scope of his powers;

(b) liaising with the PWC Liquidators to access records, information and data required to carry out investigations. This included multiple requests for information and dealing with several of the PWC Liquidators' staff members to obtain adequate responses to his information requests;

(c) responding to incoming concerns and queries from creditors, stakeholders and their representatives;

(d) conducting extensive investigations regarding Pluton's insolvency, voidable transaction claims and other rights of action;

(e) collating relevant evidence and supporting information and assessing the merits of claims identified;

(f) issuing letters of demand, negotiating and pursuing actions available to creditors;

(g) seeking, reviewing and assessing litigation funding options required to pursue relevant claims;

(h) engaging with legal advisors and the Courts in the course of litigation in relation to voidable transaction claims;

(i) issuing proceedings in Court to pursue alleged voidable transactions;

(j) seeking and negotiating a funding agreement; and

(k) completing statutory lodgements, notices and case management.

27 Mr Fitzgerald allocated these tasks to staff of various levels, based on the detail and complexity of the matters involved.

28 The legal principles applicable to making a remuneration determination are well rehearsed and it is unnecessary to set them out here: Venetian Nominees Pty Ltd & Ors v Mark Anthony Conlan & Anor_[1]; ACN 004 323 184 Pty Ltd v Spark[2]; Sanderson (as liquidator of Sakr Nominees Pty Ltd)(in liq) v Sakr[3]_.

29 Mr Fitzgerald has used a time-based methodology based on hourly fee rates for staff at various levels. The fee rates of Mr Fitzgerald and his staff have increased since his appointment. The first increase occurred on 1 January 2019 and represented a 4.55% increase on the rates applicable on Mr Fitzgerald's appointment. A second rate increase of a further 2.6% occurred on 1 January 2020. The claim is based on retrospective remuneration, exclusive of GST.

30 Mr Fitzgerald frames his claim for remuneration in the amounts and hours accumulated across three task areas, as shown in the table below:

31 The work was completed by different levels of staff. The table below shows the split of cost and time for each level of staff across each of the task areas:

32 From this table, Assistant Managers/Senior Accountants completed the largest portion of time, with Principals/Senior Managers and Appointees each performing smaller portions. The junior staff completed a very small amount of the work.

Statutory provisions and their application to this application

33 Section 60-12 of the Practice Schedule sets out the matters that the Court must have regard to in determining whether the remuneration sought is reasonable.

(a) the extent to which the work of the external administrator was necessary and properly performed

34 Each of the tasks set out in the remuneration approval report annexed to the Fitzgerald Affidavit and summarised above appear to be reasonable and necessary work of an SPL working to fulfil their obligations under the 6 September 2018 Order.

(b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and reasonably performed

35 The SPL's remuneration application is a retrospective application, i.e. it relates only to work already performed by the SPL.

(c) the period during which the work was, or is likely to be, performed by the external administrator

36 Mr Fitzgerald seeks to be remunerated for the period 6 September 2018 to 16 November 2020. This start date accords with his appointment by the Court. Mr Fitzgerald has foreshadowed a further remuneration application in due course.

(d) the quality of the work performed, or likely to be performed, by the external administrator

37 From the material before the Court it appears that the SPL's work has been of a satisfactory quality.

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator

38 Mr Fitzgerald says that the affairs of Pluton were complex, given the company's long corporate history, numerous external administrations, including receiverships, of varying duration. Mr Fitzgerald says that because of the poor state of Pluton's books and records, his team were required to effectively reconstruct Pluton's financial statements using bank statement and accounting software.

39 I accept that the affairs of Pluton were complex and that this added to the complexity of the SPL's work.

(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues

40 The work of the SPL fundamentally involved identifying preference payments and other voidable transaction claims, negotiating with creditors in relation to those claims and, where necessary commencing legal action. Mr Fitzgerald also investigated Pluton's solvency with a view to assessing prospective insolvent trading claims. Other than the complexity referred to above, there is no evidence before the Court that the SPL was 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

41 Mr Fitzgerald has issued three legal proceedings in this Court alleging voidable preference payments against creditors. The proceedings were issued only when negotiations between Mr Fitzgerald and the relevant creditor were unable to resolve the claim. Mr Fitzgerald has not received any funding to prosecute these voidable transaction claims.

42 Mr Fitzgerald is currently seeking the Court's approval of a litigation funding agreement in relation to insolvent trading claims.

(h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator

43 As at 16 November 2020 Mr Fitzgerald had received approximately $678,000 from settlement of voidable transactions claims. He estimates that he has paid approximately $324,000 in legal fees, disbursements and related professional fees.

44 Mr Fitzgerald estimates that the maximum recoveries anticipated from voidable transaction claims is approximately $1.8 million, with minimum recoveries being in the order of $1.17 million.

45 Mr Fitzgerald seeks remuneration equivalent to 26% of the maximum anticipated recoveries of the voidable transaction claims. Mr Fitzgerald anticipates a further claim for remuneration in relation to tasks undertaken after 16 November 2020. His current remuneration claim is equivalent to approximately 68% of the funds recovered to date.

(i) the number, attributes and conduct, or likely number, attributes and conduct, of the creditors

46 As at 6 September 2018 Pluton had in the order of 253 creditors including individuals, trade suppliers, legal firms and others.

(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

47 Mr Fitzgerald's remuneration application is made on a time-cost basis broken down by staff level and across three task areas.

48 The three task areas of creditors, investigations and administration appear to be an appropriate differentiation of the work undertaken by Mr Fitzgerald and his team. The investigations category accounts for more than 83% of Mr Fitzgerald's remuneration claim by value. The administration category accounts for approximately 14% of his remuneration claim by value. The creditors category makes up only 2.22% of the remuneration claim by value. Given the nature of the SPL's appointment this appears to be an appropriate apportionment by task of Mr Fitzgerald's work.

49 Mr Fitzgerald's first remuneration report sets out the charge out rates and a general guide to the qualifications and experience of the staff undertaking the work of the SPL. Mr Fitzgerald notes that over the course of his appointment to the date of his remuneration application, his fees and those of his staff have increased approximately 7% from the rates attached to his consent to act as SPL at the time of the 6 September 2018 Order. In addition, two of Mr Fitzgerald's staff were promoted over the course of the SPL's appointment.

50 As discussed above, staff at differing levels, from Appointee to Team Assistant, completed the work of the SPL. The levels of staff identified by Mr Fitzgerald appear to be reasonable and comparable to the levels of staff routinely identified by external administrators in remuneration applications.

51 From the information provided by Mr Fitzgerald, Assistant Managers/Senior Accountants completed the largest portion of time, with Principals/Senior Managers and Appointees each performing smaller portions. Junior staff completed a very small amount of the work.

52 Having regard to the timesheets that record the work undertaken by Mr Fitzgerald and his staff it appears that a number of tasks, particularly those involving collating documents, reconciling amounts, reviewing data and, to some extent, analysing financial data could have been completed by lower level staff. For this reason I am satisfied that a global adjustment that reduces the remuneration amount by $18,000 should be made, excluding GST.

(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

53 Pluton has been under external administration intermittently since 2013, including a number of receivership appointments. Mr Fitzgerald says that his investigations into voidable transaction claims included reviewing and considering potential claims identified by PWC Administrators in their s 439A Report.

(l) if: 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 the matter is, or includes, remuneration of the external administrator; the contents of the report on the review that relate to that matter

56 Having regard to the totality of the material provided on the application and the factors in s 60-10 of the Practice Schedule required to be considered, I am satisfied that the work performed by the SPL was necessary, properly performed and consistent with his duties and obligations under the 6 September 2018 Order. I determine that Mr Fitzgerald is entitled to receive remuneration in the amount of $442,567.95 (inclusive of GST) for all work performed in relation to his appointment as SPL of Pluton for the period 6 September 2018 to 16 November 2020.

[1] (1998) 20 WAR 96.

[2] [2002] VSC 353, [31]

[3] [2017] NSWCA 38; (2017) 118 ACSR 333, 344 (Bathurst CJ)