CIVIL PROCEDURE - Interlocutory applications - Remuneration of voluntary administrators
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CIVIL PROCEDURE - Interlocutory applications - Remuneration of voluntary administrators
Judgment (3 paragraphs)
[1]
Solicitors:
Russells (First to Fourth Defendants)
File Number(s): 2014/229138
[2]
Judgment
In the matter of Beechworth Land Estates Pty Ltd (in liq) and Griffith... [2018] NSWSC 959 | Case summary | Zoe
The subject of this judgment is the making of orders for the remuneration of the first defendants, Neil Robert Cussen and Ezio Marco Senatore, who until recently were the voluntary administrators of the company the subject of these proceedings, Beechworth Land Estates Pty Ltd (in liq) (Beechworth). For convenience, I will call the first defendants the "administrators".
The application is made under an interlocutory process filed on 13 February 2018.
On 21 February 2018, I made orders in respect of other relief claimed in the administrators' 13 February 2008 interlocutory process. The primary order made was that the administration of Beechworth end, that Beechworth be wound up, and that Mr Cussen be appointed as the liquidator of the company.
I did not provide any reasons for making those orders. It has been clear for a number of years that the only sensible, ultimate fate of Beechworth was that it be wound up. The primary reason why the making of a winding up order was deferred was to facilitate the administrators being able to liquidate the assets of the company, without the process of liquidation being embroiled in disputes and litigation, largely involving contentious claims by various parties to competing securities over property owned by Beechworth, the resolution of which could only have reduced the liquidated value of Beechworth's assets. Beechworth has plainly been insolvent since the administrators were appointed on 14 July 2014.
The creditors were given due notice of the administrators' application for an order that Beechworth be wound up. No creditor appeared to contest the order that Beechworth be wound up, and the only resistance was by one of the creditors, who opposed the appointment of Mr Cussen as the liquidator, and submitted that a person should be appointed liquidator who had no involvement with the administration of Beechworth. The ground for that resistance was the claim that Mr Cussen had a conflict of interest and was no longer independent. The counter argument was that Mr Cussen has accumulated deep knowledge of the affairs of Beechworth, including information concerning the position of its creditors, during the long history of the administration. That knowledge would have been lost if a new person had been appointed liquidator, with the attendant delay, wastage and duplication of costs involved in the new liquidator gaining the same level of understanding of the company's affairs as Mr Cussen.
I made an order appointing Mr Cussen as liquidator of Beechworth, but also made a direction that any party who wished to make an application for the replacement of Mr Cussen as liquidator of Beechworth should file and serve the application by 7 March 2018, with the application to be returnable before me. No application has been made for the replacement of Mr Cussen.
The position therefore is in relation to Beechworth that an obviously appropriate order that it be wound up has been made, and the only unusual aspect of the order is that it has been made as late as 21 February 2018. Mr Cussen will remain the liquidator of Beechworth unless and until a party with a proper interest obtains an order that he be replaced.
The claims in the 13 February 2008 interlocutory process that remain relevant are the following:
5. A declaration or order that the first defendants are entitled to be reimbursed and indemnified in respect of their remuneration, legal costs and other disbursements as voluntary administrators, including in connection with these proceedings, out of the assets of Beechworth and that the first defendants have a right to exercise a lien over the assets of Beechworth to secure this right of reimbursement and indemnity.
6. An order, pursuant to Division 60 of Schedule 2 to the Corporations Act 2001 (Cth) (the Act), that the remuneration of the first defendants be determined for the period 6 October 2017 to 11 February 2018 in the sum of $31,968.50 plus GST. This order is not intended to affect or vary the operation of sections 443D and 443E, or order of priority as prescribed by section 556 of the Act.
7. An order, pursuant to Division 60 of Schedule 2 to the Act, that the balance of the remuneration of the first defendants be determined for the periods 17 August 2014 to 30 September 2016 and 1 October 2016 to 5 October 2017 in the sums of $130,960.25 and $49,611.50, respectively. This order is not intended to affect or vary the operation of sections 443D and 443E, or order of priority as prescribed by section 556 of the Act.
…
11. An order that the costs of and incidental to this application be part of the liquidator's costs in the liquidation of Beechworth.
The administrators also claim an additional order, in the following terms, to cover their remuneration from 12 February 2018:
Pursuant to Division 60 of Schedule 2 of the Act, the remuneration of the first defendants be determined for the period 12 February 2018 to 21 February 2018 in the sum of $25,347.50 plus GST. This order is not intended to affect or vary the operation of sections 443D and 443E, or order of priority as described by section 556 of the Act.
It will be appropriate to outline the steps that have been taken during the administration of Beechworth to deal with the issue of the administrators' remuneration.
First, on 18 August 2014, a meeting of the creditors of Beechworth unanimously passed the following resolution:
That the remuneration of the Joint and Several Administrators, their partners and staff, as calculated on a time basis in accordance with hourly rates of Deloitte Touche Tohmatsu for the period 14 July 2014 to 6 August 2014 be approved and fixed in the sum of $77,526.50 plus GST and disbursements and that the remuneration of the Joint and Several Administrators, their partners and staff, as calculated on a time basis in accordance with the hourly rates of Deloitte Touche Tohmatsu for the period from 7 August 2014 to 17 August 2014 be approved and fixed in the sum of $25,000 plus GST and disbursements.
This resolution covered the first month of the administrators' appointment. That is a period when the amount of work required of administrators would ordinarily be expected to be reasonably high in relative terms. The Court can be sure that the creditors would not then have expected that the administration would have continued for some three and a half years. However, the terms of the resolution are of some significance for present purposes, as at least for the period the subject of the resolution, the creditors were unanimously content with the administrators' remuneration being calculated on a time basis in accordance with the administrators' firm's hourly rates.
I also made two interim orders on the application of the administrators for the payment of their remuneration. On 15 December 2016, I made the following order:
Under s 449E(1)(c) of the Act, the interim remuneration of the first defendants be determined for the period 18 August 2014 to 30 September 2016 in the sum of $392,880.75 plus GST, being approximately 75% of the total remuneration claimed by the first defendants for that period. This order does not prejudice the first defendants' rights to seek additional orders for the balance of the remuneration sought.
On 27 October 2017, I made a further order on the same basis and on the same terms for interim remuneration of $148,834.50 plus GST for the period 1 October 2016 to 5 October 2017. However, I added the following at the end of the order: "This order does not prejudice the first defendants' rights to seek additional orders for the balance of the remuneration sought, nor is it intended to affect or vary the operation of sections 443D and 443E, or order of priority as prescribed by section 556 of the Act".
The interim costs orders were made for the obvious reason that it would not have been fair to the administrators to expect them to carry their work in progress for years without receiving any remuneration, when there were funds available in the administration to meet interim payments. The orders were made on the basis of evidence provided as to the make-up of the remuneration claims.
The Court was confident that, if any interested party subsequently challenged the administrators' entitlement to remuneration, and the final amount was fixed at a sum less than the 75% interim payment, the administrators would have been able to repay the balance to Beechworth.
I have referred to the interim payments, because one of the orders that I made on 21 February 2018 was a direction that the administrators make an application for their remuneration on a final basis by 7 March 2018. It was realised at the hearing of the balance of the administrators' claim for relief on 18 April 2018, that in only seeking the orders set out in pars 8 and 9 above, the administrators had made a claim for the whole of the balance of their remuneration, without claiming an order that would have the effect that their entitlement to the interim remuneration the subject of the orders referred to in pars 13 and 14 above would become final and absolute.
As it is now desirable that the amount of the remuneration to which the administrators are entitled should be determined on a final basis, it will be appropriate for the Court to give directions to enable that determination to be made as soon as possible. It cannot be done now as the administrators have only given notice to interested creditors that they would apply to the Court for the making of the specific orders set out above. It will therefore be necessary for further notice to be given to the creditors.
It is not likely that any creditor will oppose the making of final orders. As would be expected, creditors have always been given notice of the many applications for various types of orders that the administrators have made in these proceedings. With few exceptions, creditors have not appeared or indicated their objection to orders being made. That was true of the administrators' applications for interim remuneration.
The administrators have put before the Court evidence to support a claim that the Court declare the two interim tranches of remuneration to be final. I am satisfied that, in the absence of a challenge by any of Beechworth's creditors to the reasonableness of the amounts payable to the administrators under the interim orders that have been made, orders should be made that the administrators are absolutely entitled to those payments. The appropriate course in respect of this remaining aspect of the remuneration to which the administrators are entitled is for the administrators to give notice to the creditors that the Court will make orders on a final basis that the administrators are entitled to the remuneration the subject of the interim orders, unless an interested creditor files and serves an interlocutory process within a period of 14 days that opposes that course. Any such interlocutory process may be made returnable before me at a time and the date to be arranged between the administrators' solicitors and my associate. The return date should be stated in the notice given by the administrators to creditors. If any interlocutory process is filed, appropriate case management directions will be made on the return date.
Some observations on the history of the administration of Beechworth will be appropriate in order to explain the Court's response to the administrators' remuneration applications.
Beechworth is a gold rush era town in north-east Victoria. The company, Beechworth, acquired a mortgage over land that was the subject of a residential subdivision near Beechworth. That was the company's only property, so it could only realise its property by exercising its rights as mortgagee. That would involve the sale of the lots in the subdivision. One complication was that land tax had accumulated and not been paid to the Victorian government. That land tax constituted a charge on the property in priority to Beechworth's mortgage.
The administrators were appointed on 14 July 2014 by Vangory Holdings Pty Ltd, which is the fifth defendant in the proceedings, by purporting to exercise a power under s 436C of the Corporations Act 2001 (Cth), on the ground that it was a person who was entitled to enforce a security interest in the whole, or substantially the whole, of Beechworth's property.
The present proceedings were commenced on 4 August 2014. They have come to be known as the "removal proceedings" to distinguish them from other proceedings that involved a dispute between Beechworth's shareholders (which have been called the "shareholder proceedings").
The removal proceedings involved a claim made by the plaintiffs for the removal of the administrators, and an application by the administrators for orders confirming their appointment. After that aspect of the dispute subsided, in that the plaintiffs ceased to pursue their claim, the proceedings evolved into a vehicle for the continuation of the administration, as well as giving rise to disputes between parties other than the administrators, which do not require any explanation for present purposes.
I originally entertained the optimistic objective that I would review the Court's records in order to set out a relatively complete outline of the events that have led up to the making of an order for the winding up of Beechworth. That objective proved to be naive, as the history of these proceedings and the steps taken by the administrators in the administration of the company have now become an historical puzzle. An attempt to reconstruct that history for the purposes of a judgment such as the present would not be warranted as a proper use of judicial time.
It is sufficient to say from my review of the records and my memory of presiding over most of the hearings that have taken place in these proceedings that both the proceedings and the administration itself have been inordinately difficult and protracted. More or less, the proceedings have been before the Court on about 70 separate days, and Mr Cussen has been required to make 15 or so affidavits (assuming I have not missed some), all of which were substantive and usually required the preparation of detailed exhibits.
As I have mentioned above, the only way that the administrators could realise Beechworth's assets was to use the company's powers as mortgagee over the many lots in the subdivision of the property at Beechworth to sell those lots. That proved to be a most protracted and difficult exercise. It is to be noted that at one point the administrators were appointed by agreement of interested parties and creditors as their agent collectively to sell the lots. That was a practical device to enable a marketing plan for the lots to be implemented in a manner that overcame the difficulty that various creditors claimed contentious and overlapping security interests over different lots. At another time the Court was required to appoint the administrators as receivers, primarily for the purpose of giving the administrators power to take possession of the certificates of title to many of the lots, which were apparently in the possession of different creditors who claimed charges over the lots. The Court was on a number of occasions required to intervene as between the administrators and a number of creditors to broker agreements that would facilitate the conduct of an orderly marketing campaign for the lots.
This proved to be a challenging commercial exercise because of the absence of a ready market for the lots, and for the need for the administrators to have the time and patience to create a market by the slow and steady sale of individual lots wherever that proved possible.
Not all of the parties who contracted to purchase lots duly completed the contracts, and the administrators became involved in litigation other than these proceedings, both in relation to contracts for the sale of lots and extraneous disputes between other parties.
In this context the principal rationale for the continuation of the administration arose from the effect of Item 1 in the table at the end of s 440B of the Corporations Act 2001 (Cth), which prevented any secured party in relation to the property of Beechworth enforcing the security interest during the continuance of the administration, without the administrators' written consent or the leave of the Court. It seemed to be obvious, and was not contested by any creditor who claimed to be secured in respect of any of Beechworth's property, that whatever travails the company faced, the best chance that Beechworth had of the lots in the subdivision being realised for the greatest return possible was if someone in the position of the administrators conducted a sound commercial sale process without interference from claims by contesting creditors.
On 9 October 2014, Black J made orders under s 447A of the Corporations Act to the effect that the time for the administrators to convene the second meeting of Beechworth's creditors was extended to 31 December 2014. While this outcome was entirely exceptional, on my count I made further orders extending the convening period on eight separate occasions, before I made the order on 21 February 2017 that Beechworth be wound up. Those orders were made at intervals of between approximately three and six months, mostly in the expectation that the administrators would have been able to contract to sell the lots or come close to having done so in the extended convening period. It is sufficient to record that on many occasions both the administrators and the Court were disappointed. The 'light at the end of the tunnel' seem to recede as it was approached!
As time went by, I regularly imposed upon the administrators the task of providing reports to the Court and to creditors to justify what had become the exceptional course of such a protracted extension of the statutory period for the convening of the second meeting of creditors, given that this procedure had been adopted because of the uncontested view that there was no other practical way to achieve any real commercial realisation of Beechworth's assets. The administrators' reports consistently demonstrated the need for the prolongation of the administration. Notwithstanding that creditors were given notice of the applications and so much of the administrators' reports as were not 'commercial-in-confidence', no creditor of Beechworth ever opposed the course that has been taken.
The relevance of these observations is that it has turned out that, by reason of circumstances entirely beyond the expectation or control of the administrators (or the Court), the administration was protracted and has obliged the administrators to engage in an exceptional amount of work in the due course of the administration. In hindsight, it may be thought that the administration was doomed from the inception to a very unsatisfactory outcome, because of intractable disputes between its officers and shareholders, the unusual nature of its sole asset, being a mortgage over a residential subdivision in a Victorian country town, and the discovery that Beechworth had arguably created overlapping and contestable securities over many of the lots in the subdivision.
The administrators have provided what I considered to be satisfactory evidence to justify their claims for remuneration, without having attempted to explain the basis of their claims on a line-by-line basis in respect of all of the work done. I consider it to be reasonable for the Court to accept the evidence in support of the remuneration claims on the basis that it prima facie supports those claims, in the absence of any challenge at all by any interested creditors.
It would be an inordinately costly exercise to require the administrators to justify their remuneration claims on a line-by-line basis, unless an interested creditor was prepared to accept the burden of attempting to demonstrate where parts of the remuneration claimed were unreasonable and ought to be rejected.
It would be entirely impracticable in this extraordinary case for the Court to attempt of its own motion to undertake a line-by-line examination of the administrators' administration claims. This is one of those administrations where such an exercise would be an entirely unwarranted waste of judicial time in the absence of any creditor making an issue of the reasonableness of the claims.
My understanding is that Beechworth's creditors have been identified, they have been given notice of the administrators' applications, and they are capable of looking after themselves, if they were to take the view that it was commercially advantageous to challenge the administrators' claims for remuneration.
Although it is not a matter for the Court to decide - that is a matter entirely for the creditors - my knowledge of the circumstances of the administration leads me to understand that the creditors could well decide in their own interests that Beechworth was a doomed enterprise, and that the exercise of challenging the administrators' claims for remuneration, given the substantial amount of work that they have undoubtedly done, was not a commercially sensible one.
Consequently, save for giving the creditors a final notice of the Court's intention to make orders in favour of the administrators on a final basis that they are entitled to the remuneration awarded to them on an interim basis, and either making orders to that effect, or dealing with any interlocutory processes filed by any creditors, the Court should make all orders necessary to finally dispose of the present proceedings.
I invite the solicitors for the administrators to submit to my associate short minutes of order to make in favour of the administrators orders giving the outstanding relief sought by the administrators in their interlocutory process, and also dealing with the giving of notice to creditors in relation to the orders making final the interim remuneration orders made in favour of the administrators. The short minutes of order should attach a draft notice to creditors, which may be relatively concise, but adequately explain the course that creditors will have to take if they wish to challenge the orders proposed in relation to the interim remuneration orders that have been made. I will make the necessary orders in chambers.
[3]
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Decision last updated: 25 September 2018