In the matter of Allston Homes (in liquidation) [2017] VSC 500 (29 August 2017)

CORPORATIONS REGULATIONS 2001 (Cth) - Regulations 10.25.01 and 10.25.02 - Deferred commencement machinery - Other transitional arrangements.

1 On 14 April 2008, this Court made orders winding up Allston Homes Pty Ltd (in liquidation) ("the Company") and appointing the applicant, Mr George Georges, as official liquidator. At the same time, Mr Georges was appointed liquidator of a related company, Mactry Pty Ltd (in liquidation) ("Mactry").

2 The applicant has already been paid remuneration in the sum of $111,533.95 (inclusive of GST) from the time of his appointment to the Company until 31 May 2010. He now seeks to have his remuneration for the period 1 June 2010 to 30 September 2016 fixed in the sum of $76,757 plus GST ("retrospective remuneration claim"). In addition, the applicant claims further remuneration in the amount of $3,000 plus GST from the period 1 October 2016 until the completion of the liquidation ("prospective remuneration claim").

3 The present application was made pursuant to s 473(3) of the Corporations Act 2001 (Cth) ("the Corporations Act") by way of originating process filed on 5 May 2017. I will return to the operation and currency of that provision shortly. The material relied upon in support of the application is principally contained within three affidavits sworn by Mr Georges on each of 11 April 2017, 4 May 2017 and 10 August 2017, an affidavit of Ms Fiona Murray-Palmer, solicitor, sworn 25 May 2017, the exhibits to those affidavits and two sets of submissions dated 8 June 2017 and 10 August 2017, respectively. The material includes a detailed bill of account which sets out the work undertaken by the applicant, his partners and staff in respect of the retrospective remuneration claim.

4 The applicant has requested that the application be dealt with "on the papers" pursuant to rule 9.4(5) of the Supreme Court Corporations Rules (2013). The Court considers that it is appropriate for the application to be assessed in that way.

5 Following the realisation of assets of the Company, the creditors of the Company have all been paid in full. Consequently, there are no creditors in existence to pass a resolution approving the applicant's remuneration. Further, there is no surplus available to pay to any member of the Company.

6 I note at this point that the history of the Company's shareholding is not without complication. The shares in the Company were owned by Ms Gloria Wright who died on 4 February 2012. It transpired that Mr Jonathan Rosen asserted he ought to be registered as shareholder following the death of Ms Wright. In a proceeding brought by Mr Rosen, Randall AsJ concluded that no such entitlement existed.[1] In the event, Mr Rosen himself died and, on 11 November 2016, a Judge of the County Court ordered that the shares in the Company held by the deceased estate of Ms Wright should vest in the estate of Mr Rosen. Mr Rosen's estate then vested with State Trustees Limited ("State Trustees").

7 Consequently, the applicant notified State Trustees of this remuneration application. A copy of the application and supporting material was also provided to a solicitor who had formally acted for Mr Rosen. No notice of objection has been received by the applicant from any of those interested parties.

8 As previously noted, this application is brought under s 473(3) of the Corporations Act. That section was affected by the significant reforms introduced by the Insolvency Law Reform Act 2016 (Cth) ("the ILR Act"). The ILR Act repealed a number of longstanding provisions in the Corporations Act, including ss 473(3) and 473(10) (which set out the factors a Court could consider in assessing the remuneration of a liquidator).[2] The ILR Act also introduced a new Insolvency Practice Schedule (Corporations) as Schedule 2 to the Corporations Act ("Practice Schedule").[3] The Practice Schedule contains a raft of new provisions relating to insolvency practice, including the remuneration of liquidators. In short, under Division 60 of the Practice Schedule an "external administrator"[4] of a company is entitled to receive remuneration for necessary work properly performed by him/her in relation to an "external administration".[5] The amount of that remuneration will usually be set under a remuneration determination. A remuneration determination may be made by the Court under s 6-10(1)(c) of the Practice Schedule. By virtue of s 6-12 of the Practice Schedule, in making a remuneration determination, the Court must have regard to whether the remuneration is reasonable, taking into account certain factors. Those factors are materially the same as the factors set out in the predecessor to s 6-12, namely s 473(10) of the Corporations Act.[6]

9 However, the commencement machinery for changes enacted by the ILR Act is labyrinthine and difficult to decipher. The starting position is s 2 of the ILR Act, which provides for commencement. Most of the changes, including the relevant amendments and repeals referred to above and found in Schedule 2 to the ILR Act, appear to have been scheduled to commence when proclaimed or within 12 months of Royal Assent which occurred on 29 February 2016. This would mean the default commencement date was 1 March 2017. However, s 1634 of Schedule 2 to the ILR Act provides for regulations to be made prescribing matters of a transitional nature relating to the amendments and repeals made by Schedule 2. It appears that by virtue of regulation 10.25.02(3) of the Corporations Regulations 2001 ("the Corporations Regulations"), the repeal of ss 473(3) and 473(10) of the Corporations Act was deferred until 1 September 2017. The commencement of the new provisions concerning remuneration found in Division 60 of the Practice Schedule were similarly deferred until 1 September 2017.[7] To confuse matters further, it appears that all available on-line versions of the Corporations Act were updated to include the repeals and amendments referred to above, as if those changes had already taken place on 1 March 2017.

10 In addition to this deferred commencement machinery, other relevant modifications to the operation of the Corporations Act have been made by the Corporations Regulations. Regulation 10.25.01(3) and Schedule 13 of the Corporations Regulations have the combined effect of introducing a new s 1581 into the Corporations Act which essentially provides that despite the repeal of s 473, the Corporations Act as it was prior to the relevant amendments continues to apply in relation to the remuneration of an external administrator of a company who was appointed before the "commencement day" of the Practice Schedule. Referring back to s 2 of the ILR Act, the "commencement day"[8] means 1 March 2017. However, it appears this date was deferred to 1 September 2017 by operation of regulation 10.25.02(3) of the Corporations Regulations.

11 What does all of this mean? In summary, it would seem that the originating process filed on 5 May 2017 correctly referred to s 473(3) of the Corporations Act because the relevant changes were deferred by regulation until 1 September 2017. Further, because the applicant was appointed as liquidator prior to 1 September 2017, s 473(3) still has work to do. The same can be said for s 473(10) which sets out the factors a Court may consider in determining whether the remuneration claimed by a liquidator is reasonable.

12 However, even if I came to a contrary view about the operation and currency of those sections, I would have permitted the applicant to amend his originating process nunc pro tunc to refer to the relevant replacement provisions.

13 The factors set out in both s 473(10) of the Corporations Act and its successor s 6-12 of the Practice Schedule are well known and need not be reproduced in full. As the New South Wales Court of Appeal recently confirmed in Sanderson (as liquidator of Sakr Nominees Pty Ltd) (in liq) v Sakr,[9] in taking into account the matters referred to in s 473(10), the Court must consider the actual nature of the work undertaken by the liquidator, whether it was reasonably necessary to carry it out and the appropriateness of the amount charged for it.

14 The process for assessing a liquidator's claim for remuneration was set out by the Full Court of the Supreme Court of Western Australia in Venetian Nominees Pty Ltd & Ors v Mark Anthony Conlan & Anor[10] and subsequently applied by Dodds-Streeton J in ACN 004 323 184 Pty Ltd v Spark[11] and in other cases such as Barbo Group Pty Ltd t/as Alice Roof Tiles v Investment and Construction Enterprise Pty Ltd.[12] That procedure is summarised below:

• the process is a summary one in which strict observance of the rules of evidence is not ordinarily required;
• the onus is on the liquidator to establish that the remuneration claimed is fair and reasonable;
• the function of the court is to make an independent determination, based on the material proffered, of whether the remuneration claimed is fair and reasonable;
• if the liquidator establishes a prima facie case on the basis of the submitted material, the court should then consider the validity of any objections;
• ordinarily, the liquidator will provide a statement of account reflecting in the appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly;
• the statement of account should be verified by affidavit;
• more or less particularised statements may be appropriate in different cases and every case depends on its own circumstances; and
• the overriding principle is that sufficient information be provided to the court to enable it to perform its function.

15 In my view, the applicant has established a prima facie entitlement to the claim for remuneration on the basis of the material he has filed. Given that no objections have been received concerning the application, I will proceed to consider the applicant's material in support of the remuneration claim.

16 Set out below are a series of general rulings I have made in relation to the remuneration claim. These rulings have been made having regard to the principles and statutory provisions referred to earlier and following a review of the material filed in support of the claim. For ease of reference, I have grouped similar or overlapping factors contemplated by s 473(10) under common headings.

17 I am satisfied that the applicant was required to deal with complex issues in the liquidation.

18 I have already noted the unusual circumstances associated with the determination of ownership of the Company's shares. I also consider that some complexity should be attributed to the matters set out below.

(a) There was a need to recover three parcels of land in respect of which the Company, Mactry and another related entity, Ludon Nominees Pty Ltd ("Ludon") claimed ownership as registered proprietors. The relevant parcels of land, located in Elwood, were never transferred by the vendor company prior to that entity being deregistered and its property vesting in the Australian Securities and Investments Commission ("ASIC"). This, in turn, necessitated an application to ASIC to have the parcels of land transferred to each of the Company and Mactry. Following the successful transfer, the land claimed by the Company and Mactry was sold and the secured creditor, National Australia Bank Limited ("NAB"), was repaid.

(b) The Company and Mactry had a claim of contribution against Ludon who had been jointly and severally liable for the debt owed to the NAB. However, to complicate matters, Ludon was deregistered in 2005. There were common shareholders and directors between the three companies.[13] To avoid the time and expense associated with first reinstating Ludon and then pursuing the claim of contribution against it, the applicant adopted the practical course of engaging with the relevant shareholders (who stood to be recipients of any surplus funds in the liquidation of the company and Mactry) and proposing that the applicant be released from any obligation to pursue the right of contribution against Ludon. Mr Rosen's father asserted that he had powers of attorney from both relevant shareholders. The ensuing negotiations were protracted, convoluted and not productive of any resolution.

(c) To enforce the right of contribution against Ludon, in July 2012 the applicant was compelled to commence a proceeding in this Court[14] seeking orders that Ludon be reinstated and then wound up ("the Ludon proceeding"). Mr Rosen opposed the relief sought in the Ludon proceeding and sought to have the shares in the Company transferred to him. On 16 September 2014, Randall AsJ ordered, among other things, that ASIC reinstate the registration of Ludon and that, upon its registration, Ludon be wound up. A liquidator appointed to Ludon then sold the remaining parcel of land previously vested in ASIC and paid a distribution to the Company and Mactry as creditors of Ludon arising from their claim of contribution.

(d) A separate Supreme Court of Victoria proceeding was commenced in September 2012[15] by Mr Rosen seeking, among other things, an inquiry into the liquidations of the Company and Mactry and the removal of the applicant as liquidator of each company ("the Rosen proceeding"). The Rosen proceeding and the Ludon proceeding were listed and heard together.

(e) During the course of the Rosen proceeding and the Ludon proceeding, the applicant was obliged to engage a forensic handwriting expert to examine a share transfer form said to be executed by Ms Wright. The expert also examined the powers of attorney held by Mr Rosen and purported to be given to him by the shareholders of the Company, Mactry and Ludon. The expert ultimately opined that the genuineness and/or validity of the share transfer and power of attorney documents were questionable. In addition, it emerged during the course of the Rosen proceeding that there was real doubt as to whether Mr Adam Barr, the director of the Company (and the sole director and shareholder of Mactry), was a willing participant in the proceeding. Associate Justice Randall ultimately concluded that Mr Rosen had no standing to bring the Rosen proceeding or to resist the reinstatement of Ludon in the Ludon proceedings.[16]

(f) As a consequence of the position adopted by Mr Rosen, it is apparent that both the Ludon proceeding and Rosen proceeding were either unnecessary or unnecessarily protracted. This, in turn, impacted on the duration of the liquidation process.

19 Whilst the liquidation did not occasion any higher levels of risk or responsibility on the part of the applicant than would otherwise be the case, I do not consider that this is a sufficient reason to reduce any of the amounts claimed.

20 I am of the view that, subject to the few exceptions detailed further below, the majority of work undertaken by the applicant and the subject of his retrospective remuneration claim was reasonable and necessary. Many of the tasks carried out were essentially fundamental in nature and consistent with the applicant's duties and obligations. Further, had the applicant not taken active steps to investigate the ownership of the three relevant parcels of land and to recover them from ASIC, those assets could not have been realised and the secured creditor could not have been repaid.

21 A sizeable component of the work related to the Ludon proceeding and the Rosen proceeding (including the unsuccessful negotiations which preceded the Ludon proceeding). By way of illustration, approximately $27,000 (excluding GST) has been charged in respect of this work. This represents approximately 35 per cent of the retrospective remuneration claim.

22 Further, on the basis of the material submitted, I am of the view that it is appropriate to allow the prospective remuneration claim for the anticipated future work until the conclusion of the liquidation.[17] The amount budgeted for this future work is a minor proportion of the total remuneration claim and appears to be reasonable having regard to the nature of the tasks remaining.

23 Following my review of the applicant's material and, in particular, the detailed bill of account prepared by his office, it was apparent that much of the work undertaken related to the affairs of both the Company and Mactry. However, it was unclear whether the work the subject of this application related solely to the liquidation of the Company or rather covered tasks performed in respect of both the Company and Mactry. Accordingly, I asked my Associate to write to the applicant's lawyers seeking clarification about those matters. The applicant responded by deposing to a further affidavit on 10 August 2017 and by filing supplementary submissions of even date.

24 Having read that supplementary material, I am satisfied that this application solely relates to work performed in the liquidation of the Company. I am also comfortable that where work was undertaken which related to both the Company and Mactry, Mr Georges and his staff appropriately allocated time to each liquidation. Moreover, I note that Mr Georges has already been paid remuneration concerning work undertaken in respect of Mactry following a meeting of creditors convened on 7 October 2016.

25 The New South Wales Court of Appeal recently held in Sakr Nominees that a time-based approach to determining a liquidator's remuneration is one of a number of appropriate methods available to a Court.[18] I am satisfied that a time-based approach for determining the applicant's remuneration is appropriate in this case, as distinct from an ad valoreum approach or any other method of calculation. I accept the applicant's submission that the conduct of two pieces of litigation made the process of predicting the work required inherently difficult and more amenable to time-based calculations. Further, the time-based method of charging used accurately reflects the time spent on each task. This is particularly important in the case of related companies, where time undertaken in respect of activities concerning more than one company can be apportioned across the liquidations of each company (as was the case here).

26 In his material, the applicant sets out the hourly rates (exclusive of GST) for work undertaken in the liquidation by reference to the various levels of seniority of staff within his office. The material also sets out the relative level of experience of each grade of staff within the applicant's team who worked on the liquidation.

27 The Australian Restructuring Insolvency & Turnaround Association ("ARITA") last published a scale of recommended remuneration rates in 1997.[19] ARITA's current code of professional practice specifies that the work must be necessary and proper but provides no specific guidance as to the level or rates of fees that might be charged.

28 However, based on my experience in insolvency law, including having regard to notices of consent to act provided by liquidators in winding up applications, the rates charged for work performed by the applicant and his staff appear to reflect current industry practice. I am also of the view that the rates are fair and reasonable given the size and complexity of the liquidation in question.

29 I consider that the applicant should be entitled to include GST in his remuneration claim because he and his staff have undertaken work and provided services in the liquidation of the Company which ostensibly represent taxable supplies under s 9.5 of A New Tax System (Goods and Services Tax) Act 1999 (Cth).[20] However, for the sake of simplicity, I will assess the remuneration figures exclusive of the GST component and then note the final remuneration figure as allowed to be an amount "plus GST".[21]

30 Included in the applicant's material is a summary table which identifies each member of staff within his office who worked on the liquidation, their average respective hourly charge-out rates for the period in question and their total charge as a component of the entire retrospective remuneration claim. The summary table reveals that for the retrospective remuneration claim:

• a total of just under 238 hours were worked by 32 people across all levels of seniority;
• of this total number of hours, around 121 hours (or approximately 50%) were worked by Luci Palaghia, a Partner who was charged out at an average rate of $458.97 per hour (plus GST) and Christopher Rando, an Assistant Manager who was charged out at an average rate of $264.24 per hour (plus GST);
• the Liquidator himself recorded 43.4 hours of time (or approximately 18% of the total time recorded) and charged out at an average rate of $525.00 per hour (plus GST).

31 Based on the information provided, I am satisfied that the relevant work has been carried out at an appropriate level within the applicant's firm. Generally speaking, it appears that more difficult tasks have been undertaken by people at the appropriate charge-out rates for their level of seniority and the less complex tasks have been delegated appropriately. Further, given the importance of the litigation to the outcome of the liquidation, I consider that it was necessary for the applicant to spend the time that he did in connection with those matters.

32 My review of the bill of account relied upon by Mr Georges in support of his retrospective remuneration claim suggests there are a small number of items which should be disallowed either in part or in full on the basis that they were either not reasonably necessary or excessive having regard to the time spent. These include:

• some internal meetings between the applicant and other staff members, or between staff members throughout the relevant period;
• an over-representation by the applicant's office at a meeting on 12 September 2011; and
• some duplication or "double-handling" of work within the applicant's office, particularly in relation to the review of material arising from the litigation.

33 There are also a small number of items claimed in respect of which there is an insufficient level of detail to enable me to assess whether they relate to charges that are fair and reasonable. In some rare instances, the level of description used is so generic as to offer little or no assistance or context. For example, in late June 2014, Mr Georges recorded a series of entries as "Review correspondence", without further detail or context.

34 Having regard to the above, it is both appropriate and efficient to apply a global discount of two and a half per cent in respect of the retrospective remuneration claim.

35 The retrospective remuneration claim is therefore allowed in the sum of $74,838.00 (plus GST). As previously mentioned, I will allow the prospective remuneration claim (of $3,000.00) in full.

36 I therefore assess and fix the total remuneration of the applicant at $77,838.00 (plus GST).

[1] Rosen v Georges (2014) ACSR 258 at 279-284 ("Rosen v Georges") .

[2] See item 144 of Part 2 of Schedule 2 of the IRL Act.

[3] See Part 1 of Schedule 2 of the IRL Act.

[4] Defined by s 5-20 of the Practice Schedule to include a liquidator.

[5] Pursuant to s 5-15 of the Practice Schedule, a company is taken to be under external administration on the occurrence of certain events, including the appointment of a liquidator.

[6] However, some minor changes to the language of the provision has taken place. For example, under s 6-12(a), the Court may take into account the extent to which the work was "necessary and properly performed", whereas under the analogue s 473(10)(a), the sub-section speaks of the extent to which the work performed was "reasonably necessary".

[7] See regulation 10.25.01 of the Corporations Regulations 2001.

[8] See the definition in s 1551 of the Corporations Act 2001.

[9] [2017] NSWCA 38; (2017) 118 ACSR 333 ("Sakr Nominees") at 344 per Bathurst, CJ.

[10] (1998) 20 WAR 96.

[11] [2002] VSC 353 at [31].

[12] [2012] VSC 71 per Gardiner AsJ at [14].

[13] As previously noted, Ms Wright was the sole shareholder of the Company. Mr Adam Barr was its director and also the sole director and shareholder of Mactry. In addition, Ms Wright was the sole director and shareholder of Ludon prior to its deregistration.

[17] See In the matter of Angstrom Assets Pty Ltd (in liq) [2014] NSWSC 1779 and the cases referred to in support of that proposition at [8].

[18] Sakr Nominees at 343. See also In the Matter of Banksia Securities Pty Ltd (in liquidation) (receivers and managers appointed) [2017] NSWSC 540 at [55].

[19] ARITA was known as the Insolvency Practitioners Association of Australia when the rates were last published.

[20] Re F Basile & Associates Pty Ltd (In Liq) [2016] VSC 690 at [59].

[21] See AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, in which Brereton J allowed liquidators' remuneration for an amount expressed as being "(plus GST)".