Higgins v JSS Logistics Pty Ltd

JACKSON J: 1 Gregory Dudley and Jerome Mohen seek approval of their remuneration in relation to acting as provisional liquidators of JSS Logistics Pty Ltd (in liq). They acted in that capacity from 2 February 2022 until 12 April 2022. At the end of that period, the Court ordered JSS Logistics to be wound up, and since then Mr Dudley and Mr Mohen have acted as its liquidators. For clarity in relation to this application, I will refer to them as the provisional liquidators. 2 The provisional liquidators seek approval of remuneration in the sum of $120,650.00 (excluding GST). For the following reasons, remuneration in that sum will be approved.

Background 3 JSS Logistics operated a transport and logistics business in WA from two depots, located in Perth and in Karratha. Its two directors and two shareholders in equal shares were a married couple: Sarah Higgins and James Stewart. 4 In about August 2020, following the breakdown of their marriage, Ms Higgins and Mr Stewart agreed to sell JSS Logistics' business and assets with a view to ceasing trading. In November 2021 this culminated in an agreement for the sale of the company's business to Simm Group Assets Pty Ltd. Completion of the sale occurred on 15 December 2021. 5 On 30 November 2021, Ms Higgins commenced proceedings in this Court seeking orders for the winding up of JSS Logistics. An interlocutory application was also filed on 30 November 2021 seeking the appointment of provisional liquidators until the making of a winding up order. 6 On 2 February 2022, Mr Dudley and Mr Mohen were appointed as joint and several provisional liquidators pursuant to s 472(2) of the Corporations Act 2001 (Cth). According to a report that the provisional liquidators lodged with the Court at the beginning of March 2022, as at the date of their appointment there were several outstanding matters regarding the sale to Simm Group that needed to be resolved. These included the transfer of registration of the company's numerous vehicles to Simm Group and the assignment of the lease for the Perth depot and transfer of service contracts from the company to Simm Group. Net sale proceeds held in a solicitors' trust account pursuant to an order the Court made in December 2021 also needed to be distributed, and there was a potential claim by Simm Group for damages relating to non-delivery of assets and resulting loss of turnover. 7 As has been said, orders for the winding up of JSS Logistics and the appointment of Mr Dudley and Mr Mohen as liquidators were made on 12 April 2022.

The evidence 8 The provisional liquidators have filed two affidavits of Mr Dudley in support of the relief sought, one dated 5 July 2022 and the other dated 17 August 2022, as well as a further affidavit of their solicitor, Alister Norwood dated 31 October 2022, which gives a summary of receipts and payments. 9 The first of those affidavits contains the bulk of the evidence in support of the interlocutory application. It attaches a report that the provisional liquidators have prepared in support of the application for approval of remuneration. They are partners in the accounting firm RSM Australia Partners and had the assistance of various staff members in the performance of their functions as provisional liquidators. Their claim to remuneration in relation to their work and that of their staff is calculated on a time costing basis. The report provides a breakdown of the hourly rates and hours spent on the matter by the provisional liquidators and each member of their staff that worked on it. The $120,650 for which approval is sought is made up entirely of those time charges (exclusive of GST). 10 The report gives a summary of the work undertaken, broken down into six 'major task areas', namely assets, creditors, employees, trading (called 'Trade on/Treasury'), investigation and administration/statutory. The lion's share of the work appears to have involved assets and investigation. The first of these categories of work included the identification and location of the assets of JSS Logistics, principally its fleet of vehicles. It also included the sale of real property and matters concerning the sale of the business. There was also debt collection. In the investigation area there was the process of collecting and reviewing the company's books and records and preparing a report to the Court on the status of the company, including its solvency, and reviewing the status of the sale of business. 11 A total of 307.6 hours is proposed to be charged for these and the other activities summarised in the report. Most of the work was done by a senior manager (about 80 hours), an assistant manager (about 105 hours), and an analyst (about 55 hours), with Mr Dudley performing most of the work that was done at partner level (about 30 hours). The remuneration report includes an itemised breakdown of all time charged. 12 It is relevant that the provisional liquidators' report to the Court estimated the value of the assets of the company at between about $2.9 million and $4.2 million, and liabilities at between about $2.0 million and $6.0 million. Much of the uncertainty about the value of liabilities is attributable to the claims by Simm Group in respect of the sale of the business and a prosecution against the company by WorkSafe. 13 Mr Dudley's first affidavit expresses the opinions that the length of time spent by the provisional liquidators and their staff was reasonably necessary for the work carried out, that all work was carried out by suitably qualified professionals in a timely and efficient manner, and that the remuneration claimed is appropriate. He says that he believes that the skill, care and responsibility attached to the work involved justifies the fees claimed.

Principles 14 Section 60-16(1)(a) of the Insolvency Practice Schedule (Corporations) (being Schedule 2 to the Corporations Act) entitles a provisional liquidator to receive remuneration by way of percentage or otherwise as is determined by the Court. Section 60-16(2) provides that, relevantly, s 60-12 applies in relation to a determination made under s 60-16 in the same way it applies to a remuneration determination made under s 60-10 (liquidators' remuneration). 15 Section 60-12 of the Insolvency Practice Schedule therefore requires the Court to have regard to a number of specified matters when making a remuneration determination regarding a provisional liquidator. The provision requires the Court to have regard to whether the remuneration sought is reasonable, taking into account matters that relevantly include the following: (a) the extent to which the work by the external administrator was 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; … (m) any other relevant matters. 16 These matters are similar to those previously set out in s 473(10) of the Corporations Act, and authorities based on that provision and its predecessors are still useful: Re Barokes Pty Ltd (in liq) [2020] VSC 555 at [29] (Hetyey AsJ); cf Hundy (liquidator), re Renewable Energy Traders Pty Ltd (in liq) [2019] FCA 1795 at [112] (Griffiths J). 17 Procedural requirements for the making of an application for approval of remuneration are set out in r 9.3 of the Federal Court (Corporations) Rules 2000 (Cth) and include details regarding the manner in which an application must be made. Relevantly, notices must be provided to particular interested parties, such as creditors and shareholders. 18 The onus is on the provisional liquidators to establish that the remuneration claimed is reasonable. The initial task of the Court is to consider whether the provisional liquidators have made out a prima facie case on the evidence that the remuneration claimed is fair and reasonable. It is the function of the Court to determine the remuneration by considering the materials provided and bringing an independent mind to bear on the relevant issues. See Morgan, re Brighton Hall Securities Pty Ltd [2018] FCA 2029 at [17]-[20] (McKerracher J); Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 at [54] (Bathurst CJ, with whom the other members of the Court agreed); Conlan v Adams [2008] WASCA 61 at [28] (McLure JA, Buss JA and Newnes AJA agreeing); Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102 (Kennedy and Ipp JJ, Wallwork J agreeing). 19 The time-costing based approach to remuneration and a percentage-based approach are both commonly used and no particular approach is preferred. There is also a need for proportionality between the cost of the work done and the value of the services provided. It is acknowledged that some of the work done by provisional liquidators may not generate a return to creditors but is necessary nonetheless: Re Sirrah Pty Ltd [2021] NSWSC 1636 at [17] (Rees J); Sakr at [55]-[60]. 20 The Court is not required to undertake a line-by-line review of bill narratives and can review them in a broad way, considering whether they are consistent with the provisional liquidators' affidavit evidence and any other evidence led in support of the claim for remuneration: Re Sakr Nominees Pty Limited [2017] NSWSC 668 at [29] (Black J). The provisional liquidators must lead evidence in sufficient detail to enable the Court to determine the reasonableness of the remuneration sought, including an itemised account: Sirrah at [17].

The procedural requirements have been satisfied 21 As has been said, r 9.3 of the Federal Court (Corporations) Rules sets out the procedural requirements for applications by provisional liquidators of a company for determination, under s 60-16(1) of the Insolvency Practice Schedule, of the remuneration the provisional liquidator is entitled to receive. Relevantly, in this proceeding, the application has been made by interlocutory process in the winding up proceeding (r 9.3(2)). 22 The affidavit of Mr Dudley dated 17 August 2022 lists persons who have been notified, specifically Ms Higgins and Mr Stewart and five other entities. Although the affidavit does not say the notices have been provided to the five largest creditors of the company (r 9.3(3)(b)) and each member of the company whose shareholding represents at least 10% of the issued capital of the company (r 9.3(3)(c)), it does specify that the notices were sent to the only parties required to be notified. So it can be inferred that the persons notified were those required to be notified under r 9.3(3)(b) and (c). Each of them was provided with at least 21 days' notice of the application and the notices were in the prescribed form, as is required by the Federal Court (Corporations) Rules. 23 Mr Dudley's second affidavit also says that the provisional liquidators have not received any notice of objection from any of the relevant parties within the 21 day period. As such, the provisional liquidators filed the affidavit required by r 9.3(5)(a) and have endorsed the interlocutory process with a request the application be dealt with in the absence of the public and without any attendance by the provisional liquidators: r 9.3(5). It is appropriate to deal with the application in that manner: r 9.3(5)(c). 24 The Rules also provide for the content of the affidavit filed with the interlocutory process (r 9.3(7)-(8)). The affidavit must state the nature of the work performed and the amount of remuneration claimed (r 9.3(7)(a)-(b)), which has been stated by way of the report described above. The affidavit must also include a summary of the receipts taken and payments made: r 9.3(7)(c)). As has been said, that summary has been provided in the affidavit of Mr Norwood. 25 Finally, the affidavit must also provide evidence of the matters mentioned in s 60-12 of the Insolvency Practice Schedule to the extent they may be relevant to a provisional liquidator: r 9.3(8). On its face, Mr Dudley's first affidavit does so.

The remuneration sought is reasonable 26 Having regard to the following matters, I am satisfied that the remuneration which the provisional liquidators seek is reasonable. The provisional liquidation lasted for just over two months. The amount claimed, about $120,000, is proportionate to the value of the subject matter, which was up to $4.2 million measured by the assets of JSS Logistics or up to $6.0 million measured by the company's liabilities. Aspects of JSS Logistics' affairs were likely to have been time consuming, or at least not straightforward, on both the assets and the liabilities sides. A substantial part of the company's assets, prior to the sale to Simm Group, was comprised of a large number of vehicles which needed to be identified, located and secured. One basis on which it was appropriate to appoint provisional liquidators was that there was reason to believe that Mr Stewart may have taken possession of or hidden some of the vehicles, and this was likely to impact on the sale of the business. On the liability side of things, the provisional liquidators were required to deal with the claims by Simm Group in relation to the sale of the business and the WorkSafe claim. 27 The proportion of time spent by people of different seniority and charge out rates was appropriate. The work was evidently done by a mix of senior, mid-ranking and junior personnel, and Mr Dudley as the partner in charge of the appointment did not spend an excessive amount of time on the matter. I have reviewed the time charging line items in the broad way mandated by the authorities and am satisfied that they are reasonable. There is no reason to doubt the opinions expressed by Mr Dudley in his first affidavit that the work was done in a timely and efficient manner, and no reason to doubt the quality of the work done. 28 Orders will be made approving the remuneration in the amount sought. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.