By Amended Originating Process filed, by leave, on 18 September 2020, the Plaintiffs, JPD Media & Design Pty Ltd (subject to deed of company arrangement) ("JPD"), Mr Cathro in his capacity as former voluntary administrator of JPD and Mr Cathro in his capacity as deed administrator of JPD seek orders determining the quantum of remuneration to which Mr Cathro is entitled as administrator and deed administrator.
Mr Cathro relies on his affidavit dated 5 August 2020, which refers to his having been appointed as voluntary administrator of JPD from 3 May 2018 until 27 June 2018 and as deed administrator of JPD since that date. Mr Cathro refers to a resolution passed at the second meeting of creditors on 6 June 2018 in respect of his remuneration as voluntary administrator, including estimated costs to the execution of the deed of company arrangement dated 27 June 2018, and notes that he has received the amount of $45,000 inclusive of GST by way of remuneration and payment of internal disbursements to date. Mr Cathro now seeks additional remuneration of $22,248.27 for his work as voluntary administrator for the period from 29 May 2018 to 6 June 2018 and $12,643.07 for the period from 7 June 2018 to 27 June 2018.
Mr Cathro exhibits time cost records supporting that claim. Mr Cathro summarises the work done in that period and identifies additional work that was required, which he says was unforeseen when creditors approved the amount of his remuneration, including preparation of an addendum to his report to creditors dealing with additional matters that arose after that report; additional investigations surrounding potential recovery actions in a liquidation; further discussions with the deed proponent concerning the progress of sale of a property to generate funds which were to be contributed with the DOCA; communications with the major creditor of JPD regarding the progress of the administration; and other matters.
Mr Cathro expresses the view that the work identified in the time cost sheets and invoices exhibited to his affidavit was necessary for the conduct of the voluntary administration and deed administration of JPD. As I have observed in earlier judgments, a statement of that character is not conclusive of the fact, but is relevant so far as an external administrator has been prepared to confirm that matter. Mr Cathro also addresses the reasons that remuneration is sought on a time basis and sets out a list of the persons who have worked on the administration and deed administration. While a number of persons have worked on the matter, Mr Cathro, a manager, a supervisor and a file accountant have done the bulk of the work, and the others involved have done limited work. Mr Cathro's evidence is that it is his opinion that the division of work among staff was appropriate for the nature of work undertaken during the administration and deed administration and I accept that the allocation of work as between senior staff, intermediate staff and junior staff does not give rise to concern, in respect of a relatively complex administration and deed administration.
Mr Cathro's affidavit also exhibits three invoices from an advisory firm and an invoice from his solicitors. It is not necessary to address those invoices, since approval is neither sought nor ordinarily given for disbursements in a deed administration, but I have had regard to the fact of those disbursements in determining the reasonableness of Mr Cathro's remuneration.
Mr Cathro relies on a second affidavit dated 31 August 2020 of his solicitor, Mr Sargeant, who gives evidence of the issue of a circular to creditors providing a link to a website, from which creditors could download the Originating Process and Mr Cathro's affidavit in support of it, and to notice of the application to the Australian Taxation Office. Mr Sargeant noted that Mr Cathro had not received any notice of objection to the remuneration claimed from creditors.
[3]
Claim for remuneration as voluntary administrator
First, Mr Cathro seeks orders under s 60-10, 60-11 or 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC") that, in respect of the voluntary administration of JPD, his remuneration as voluntary administrator, as previously determined by creditors on 6 June 2020, be varied to $35,066.31 for the period from 29 May 2018 to 6 June 2018 and to the amount of $17,643.07 for the period from 7 June 2018 to 27 June 2018 (in each case inclusive of GST).
When the hearing commenced before me on 4 September 2020, a question arose as to whether the Court had jurisdiction to determine the application then made by Mr Cathro to fix the costs in respect of the administration. That question arises because s 60-10 of the IPSC, on which Mr Cathro then relied, provided that a determination specifying remuneration that an external administrator of a company is entitled to receive can be made by a resolution of the creditors; or, if there is a committee of inspection and a determination is not made by creditors, by the committee of inspection; or, if a determination is not made by creditors or a committee of inspection, by the Court.
Mr Cook, who appears for Mr Cathro, referred to the decision in Kelly, Re Halifax Investment Services Pty Ltd (in liq) (No 6) [2019] FCA 2111 where the administrators' and liquidators' remuneration was approved by the Federal Court of Australia, notwithstanding that resolutions had previously been passed at a meeting of a committee of inspection in respect of that remuneration. Mr Cook acknowledges that it is not apparent whether the Court had there considered whether s 60-10(1)(c) of the IPSC was available to approve that remuneration in those circumstances. Mr Cook accepts that, on the proper construction of s 60-10, it is likely more appropriate that he seek to vary the previous remuneration determination, where a remuneration determination has already been made by creditors. It seems to me that the Court would not have jurisdiction to make such a determination, where a determination of Mr Cathro's remuneration had already been made by creditors, but has jurisdiction to vary the previous remuneration determination by creditors.
Mr Cook sets out the factors to which the Court must have regard in determining whether the remuneration sought is reasonable by reference to s 60-12 of the IPSC, and he refers to my summary of the applicable principles in Re Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23]ff, in dealing with a liquidator's remuneration, as follows:
"A liquidator is entitled to reasonable remuneration for his or her services and the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable and, in determining a liquidator's reasonable remuneration, the Court will have regard to the factors specified in s 473(10) of the Corporations Act, to which I refer further below. The Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; the liquidator must lead evidence in sufficient detail that the Court can determine that question; and 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 at 102-103. Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the "value" of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors: Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 at [64]; Macks v Maka [2015] SASC 200; (2015) 110 ACSR 279 at [52]-[66]; Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 at [70]-[71]; Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545.
Most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided: Venetian Nominees Pty Ltd v Conlan above; Templeton v Australian Securities and Investments Commission above; Warner, Re GTL Tradeup Pty Ltd (in liq) above. There has been a degree of concern as to time-based remuneration, over a considerable period, although it must be accepted that remuneration on that basis is now more common. I reviewed the relevant authorities, including the observations of Finkelstein J in Re Korda; Re Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424, and subsequent decisions in this Court echoing the same concern, in Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund [2016] NSWSC 1292; (2016) 115 ACSR 581 at [27]-[50] and Gleeson JA has similarly viewed those cases in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 at [38]ff. Several recent decisions, of which the previous decision of Brereton J in this case was one, have emphasised the significance of the percentage that a liquidator's remuneration bears to the level of asset realisations achieved, and applied percentages of recoveries where time-based calculations would have led to unreasonable results: Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270; Re Gramarkerr Pty Ltd [2014] NSWSC 1299; Re Gramarkerr Pty Ltd (No 2) [2014] NSWSC 1405; Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2) [2016] NSWSC 106; (2016) 305 FLR 222; Re Sakr Nominees Pty Ltd above. A percentage of realisations can also be used as a test of whether remuneration claims brought by a liquidator on a time costing basis are reasonable: Re Clout (in his capacity as liquidator of Mainz Developments Pty Ltd) (in liq) [2016] NSWSC 1146; (2016) 115 ACSR 459; Re Idylic Solutions Pty Ltd atf Super Save Superannuation Fund above.
In Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above, Bathurst CJ (with whom the other members of the Court of Appeal agreed) observed (at [54]) that the onus is on a liquidator to establish that the remuneration claimed is reasonable, and it is the Court's function to determine that remuneration by considering the material provided to it and bringing an independent mind to bear on the relevant issues; that many of the factors specified in s 473(10) of the Corporations Act have the concept of proportionality as an underlying theme, and that concept is an important consideration in determining whether remuneration is reasonable, so that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed (at [55]); and that the fact that work does not increase the funds available for distribution to creditors or contributories does not mean that the liquidator is not entitled to be remunerated for it, where it was reasonable to carry out that work and the amount charged is reasonable (at [57]-[58]). The Court of Appeal's decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above does not prefer any of the particular approaches to remuneration to which I have referred above to any other of those approaches and, in particular, does not require a time-based approach to remuneration to be adopted in preference to percentage-based approach to remuneration. Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; in part, on the view taken by any persons who oppose the remuneration application; and, in part, the view taken by the Court."
Mr Cook recognises, by reference to that judgment, that the Court must apply an independent mind to whether the remuneration sought relates to necessary work which was properly performed and consider the proportionality between the remuneration claimed and the benefit received by creditors in relation to the work. He also rightly recognises that it is not the Court's function, in an application of this kind, to undertake a line-by-line review of the narratives in the time schedules, but the Court will review the evidence in a broad way to satisfy itself that it supports the other evidence that is led: Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 at [48]; Re Aberdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770 at [36]. Mr Cook submits that the evidence on which Mr Cathro relies is sufficient to allow the Court to be satisfied that the remuneration sought is necessary work properly performed and that Mr Cathro is entitled to the remuneration sought.
I have referred to Mr Cathro's affidavit evidence in support of his claim for this period above. On balance, I am satisfied that the evidence on which Mr Cathro relies shows a sufficient change of circumstances to warrant a review and increase in his remuneration, and that the remuneration claim is supported by the detailed time records on which he relies.
[4]
Claim for remuneration as deed administrator
Second, Mr Cathro seeks an order under s 60-10 and/or s 90-15 of the IPSC that, in respect of the deed administration of JPD, his remuneration and internal disbursements as deed administrator be determined in the amount of $20,416.56 inclusive of GST from 27 June 2018 to 22 May 2020. Mr Cathro also claims remuneration and disbursements as deed administrator, and points to the fact that a resolution for anticipated remuneration as deed administrator was lost at the second meeting of creditors. In those circumstances, he is free to apply to the Court for approval of that remuneration.
I have referred to Mr Cathro's affidavit evidence and the applicable principles above. Mr Cathro claims an amount of $20,416.56 for remuneration for the period from 27 June 2018 to 22 May 2020, and that claim is supported by time cost records for that period. On balance, I am satisfied that Mr Cathro's narrative of the work done and the time costing records adequately support the remuneration claimed.
[5]
Claim for future remuneration
Mr Cathro also seeks an order that remuneration of $25,000 inclusive of GST be determined for the period from 23 May 2020 to the conclusion of the deed of company arrangement. I recognise that the Court's power to fix remuneration includes a power to fix future remuneration and the Court will, on occasion, approve claims for future remuneration, generally where an external administration is close to completion, in order to avoid the costs of a further application: HN QCV Bottle Tree Village Pty Ltd v QCV Bottle Tree Village Pty Ltd (No 2) [2019] NSWSC 433; Macquarie Bank Ltd v Two Eagles Pty Ltd [2014] NSWSC 367; Lucantonio v Benscrape Pty Ltd (No 2) [2020] NSWSC 1114 at [55]. At least two months of the period for which future remuneration was claimed had elapsed by the date of Mr Cathro's affidavit in support of his remuneration claim, and Mr Cook acknowledged in oral submissions that part of that claim now relates to actual costs incurred.
The amount of anticipated remuneration claimed is not small and involves significant steps including the preparation of a further report to creditors in respect of a first and final dividend, adjudication of creditors' claims, determining creditors' claims and distributing a first and final dividend to creditors. However, in Lucantonio v Benscrape Pty Ltd (No 2) above, Williams J did not treat the fact that future remuneration was of a similar size as reason not to approve it. I will, with hesitation, adopt the same approach and approve the future remuneration claimed, largely in order to avoid the wasted costs of a further application for approval of those costs at the conclusion of the deed administration. It nonetheless seems to me that it would have been preferable for Mr Cathro to have deferred this application until he had completed, or was at least closer to completion, of the deed administration, so that this portion of the costs claimed could have been assessed by reference to evidence of what he had actually done, rather than what was expected to be done.
I note, for completeness, that Mr Cook, on behalf of Mr Cathro, had confirmed in submissions that, if Mr Cathro's application for future remuneration was not approved in this application, Mr Cathro would not seek to charge the costs of a further application to approve that remuneration, at the conclusion of the administration, to creditors. That conformation was appropriately given, but that situation does not arise.
[6]
Leave in respect of internal disbursements
Mr Cathro also seeks an order that "internal disbursements" of $500 inclusive of GST be determined for the period from 27 June 2018 to 30 June 2021. I am not persuaded that I should determine the amount of Mr Cathro's internal disbursements, where the jurisdiction conferred on the Court relates to remuneration rather than disbursements.
Mr Cathro also sought leave, under s 60-20(3)(b) of the IPSC to derive a profit or advantage from the administration or deed administration in respect of his internal disbursements from 3 May 2018 to the conclusion of the deed of company arrangement in the amount of $500. That section relevantly provides, in s 60-20(1) that an external administrator of a company must not directly or indirectly derive any profit or advantage from the external administration of the company. Section 60-20(2) specifies the circumstances in which profit or advantage is taken to be derived as follows:
"(2) To avoid doubt, an external administrator of a company is taken to derive a profit or advantage from the external administration of the company if:
(a) the external administrator directly or indirectly derives a profit or advantage from a transaction (including a sale or purchase) entered into for or on account of the company; or
(b) the external administrator directly or indirectly derives a profit or advantage from a creditor or member of the company; or
(c) a related entity of the external administrator directly or indirectly derives a profit or advantage from the external administration of the company.
Section 60-20(3)(b), which Mr Cathro seeks to invoke, allows an exception to that prohibition where the Court gives leave to the external administrator to derive the profit or advantage.
In Lucantonio v Benscrape Pty Ltd (No 2) above, a receiver sought the Court's approval of internal charges, implicitly under this section, because they may contain an element of profit for his firm. Williams J granted that approval where the amounts of the internal disbursements were modest having regard to the period over which they were made, and were, in that case, the kind of charges likely to be incurred in the course of a receivership that involved the ongoing operation of a business. I will adopt the same approach and grant that leave.
[7]
Costs of these proceedings
Mr Cathro seeks an order that his costs be paid from the assets of JPD on an indemnity basis, fixed in the sum of $17,500 inclusive of GST. I summarised the circumstances in which a gross sum costs order may be made in Saba v Plumb & Anor [2017] NSWSC 955 at [23] as follows:
"Section 98(4) of the Civil Procedure Act relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power is commonly exercised where costs have been incurred in a lengthy or complex case although it is not in its terms limited to such a case … The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Court typically applies a discount in assessing costs on a gross sum basis." [citations omitted]
Such an order may also be made in insolvency matters where the costs of an assessment would be disproportionate to the amount of the costs claimed.
Mr Cathro's claim for costs of the application is based on costing estimates from his solicitors which are not exhibited to his affidavit, and his expressed opinion that anticipated legal costs (including Counsel's fees) in relation to the preparation and hearing of the application will be $17,500 inclusive of GST. That is a substantial claim for costs, given the amount involved in the application, and the evidence relied on to support seems to me to fall well short of what would ordinarily be required for a gross sum costs order. I will allow Mr Cathro an opportunity to moderate that claim, or lead further evidence and make submissions in support of it, if he wishes to do so, when submitting orders to give effect to this judgment and will determine that claim in chambers. Alternatively, Mr Cathro can proceed to an assessment of those costs if he prefers.
[8]
Orders
I direct that Mr Cathro bring in orders to give effect to this judgment and any submissions and evidence on costs within 7 days.
[9]
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Decision last updated: 30 September 2020