In the matter of Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund and Others [2018] NSWSC 700

Application for remuneration as court appointed receivers of assets of Mr Hobbs and Ms Wu

1. The Applicants initially sought an order under ss 424, 425 and 473 of the Corporations Act that their remuneration, as court-appointed receivers and managers of the assets of Mr David Hobbs be fixed in the amount of $29,883 plus GST for the period from 21 February 2013 to 19 September 2017. Messrs Taylor and Needham also sought an order that the Court approve their prospective remuneration in relation to the receivership of Mr Hobbs in an amount capped at no more than $7,500 plus GST for the period from 20 September 2017 to finalisation of the receivership. A significant part of that period has, of course, already passed. The Applicants also sought corresponding orders in respect of their past remuneration as Court-appointed receivers and managers of the assets of Ms Wu in the amount of $36,977.78 plus GST and prospective remuneration in respect of that receivership in the amount capped at $3,000 plus GST for the period from 20 September 2017 to finalisation of the receivership. The Applicants also sought orders passing their accounts in respect of Mr Hobbs and Ms Wu for specified periods.
2. The Applicants filed a Further Amended Interlocutory Process, at the hearing on 24 April 2018, claiming substantially the same relief as that claimed in the application that had been served on investors and ASIC, but relying on s 601EE(2) of the Corporations Act in addition to ss 424, 425 and 473 of the Corporations Act. I am satisfied that the reliance on that additional section in the Further Amended Interlocutory Process raised no additional factual or legal issue that could be prejudicial to interested persons, and that it is not necessary for that Further Amended Interlocutory Process to be served on interested parties in order to give them fair notice of the substance of the application.
3. The Applicants rely, in support of their remuneration application, on Mr Taylor's affidavit dated 28 September 2017. Mr Taylor there sets out his experience as a chartered accountant and registered liquidator and indicates that he is a full member of the Australian Restructuring Insolvency and Turnaround Association ("ARITA") and that he observes the principles and standards of conduct prescribed by the ARITA Code of Professional Practice for Insolvency Practitioners ("Code") in any formal appointment, and confirms that he has observed the principles and standards of conduct relating to remuneration in the Code in respect of the remuneration that he now claims. Mr Taylor there set out the history of the receiverships of Mr Hobbs and Ms Wu and their purpose, which included to ascertain their assets and liabilities. Mr Taylor also pointed out that the orders appointing the Applicants as receivers of Mr Hobbs and Ms Wu provided that their reasonable costs and expenses be paid out of each of their assets. Mr Taylor also referred to the Applicants' investigations in respect of Mr Hobbs and Ms Wu; the staff who had worked on the receiverships; the fact that no charge has been made for administrative work undertaken by two persons who assisted Mr Taylor and his staff; and to recoveries in Mr Hobbs' and Ms Wu's receiverships and the amounts he currently held as receiver of each of their assets.
4. Mr Taylor's affidavit referred to the method in which time was recorded by members of his staff, which was consistent with common professional practice among insolvency practitioners, and to the fact that such work was recorded against "milestones" describing the categories of work performed, including administration, assets, investigations, creditors/investors and dividends, and to the staff who are allocated to the conduct of the matter. Mr Taylor also exhibited detailed schedules of costs, to which I have had regard in determining this application. Mr Taylor expressed the view that the length of time spent by his partners, his staff and himself was reasonably necessary for the work that had been carried out; all work was performed by professionals who had requisite qualifications to perform that work; and all the work was conducted in a timely and accurate manner. While Mr Taylor's view as to those matters is plainly not determinative, that evidence is relevant to the application. Mr Taylor also set out the basis on which the fees of staff members were set within his firm and identified the tasks to be performed from 20 September 2017 (some of which have now been completed) which provide the basis of his claim for prospective remuneration; set out his accounts of receipts and payments for the receiverships of Mr Hobbs and Ms Wu from his appointment to 19 September 2017; and led evidence of the percentage of the remuneration claimed as against gross realisations in respect of the receiverships of Mr Hobbs and Ms Wu. That evidence was updated by his further affidavit evidence to which I refer below.
5. By her affidavit dated 10 November 2017, Ms Littler gave evidence of service of documents relating to the remuneration application on ASIC. ASIC has also not appeared to oppose the Applicants' remuneration application. By a second affidavit dated 13 November 2017, Mr Taylor gave evidence of service of a notice of intention to apply for remuneration on Mr Hobbs and Ms Wu.
6. By his further affidavit dated 25 January 2018, Mr Taylor updated the position as to prospective remuneration claimed in his affidavit dated 28 September 2017, by reference to the fees claimed by him and his staff for the period 20 September 2017 to 22 January 2018, being $1,817 in relation to the receivership of Ms Wu and $3,630 in relation to the receivership of Mr Hobbs. Mr Taylor also led evidence as to his review of the relevant bills and of his assessment that the costs incurred to complete the tasks remaining to be completed in the receiverships of Mr Hobbs and Ms Wu will exceed the balance of the amount sought for his prospective remuneration in respect of those receiverships.
7. By his further affidavit dated 23 April 2018, Mr Taylor verified his accounts of receipts and payments for the receiverships of Mr Hobbs and Ms Wu, for the purposes of r 46.5 of the Uniform Civil Procedure Rules 2005 (NSW). Mr Taylor also further updated the costs claimed in respect of those receiverships for the period 23 January 2018 to 17 April 2018 and again confirmed the accuracy of time records in respect of the work performed and indicated his belief that the work performed was reasonably necessary in order to finalise each of the appointments. Mr Taylor also led evidence that the identified tasks were appropriate and necessary to finalise each of the appointments; the sums claimed are unlikely to indemnify him in full for the prospective work to be performed; he considered the prospective amounts sought were reasonable in light of the work that had been carried out and the work that was still to be carried out; and an order for prospective remuneration would avoid the need to make a further application for approval of his remuneration and incurring the associated costs of doing so. Mr Taylor also updated calculation of the percentage of remuneration to realisations, performed by his staff under supervision, indicating that the remuneration claimed represented 9.68% of the gross realisations of the Hobbs receivership and 47.88% of the gross realisations of the Wu receivership. The latter position is not surprising, where that receivership had a degree of complexity but limited assets were realised in it.
8. Ms Whittaker referred to the observations of Gordon J in Australian Securities and Investments Commission v Letten (No 9) [2010] FCA 1459 at [13] that s 601EE(2) authorised an order for remuneration as follows: "The court's power to make the Proposed Remuneration Orders was not in issue. In my view, the source of the power includes s 601EE of the Corporations Act in relation to the Schemes and the court's inherent power to control Receivers appointed by the court: Letten (No 7) at [269] to [271] and Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd (No 3) [2004] 1 Qd R 591; Australian Securities and Investments Commission v Carey (No 5) 58 ACSR 6 at [13] to [24]; Australian Securities Commission v Aust-Home Investments Ltd 44 FCR 194 at 204."
9. Ms Whittaker also drew attention to my observation, in Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund and Others [2016] NSWSC 1292; (2016) 115 ACSR 581 at [22], that: "…an order for remuneration can be made under s 601EE(2) of the Corporations Act, and such an order would ordinarily be made by reference to the principles that are applied in respect of the remuneration of court-appointed receivers or liquidators appointed to a company, including the statutory provisions dealing with the fixing of a receiver's remuneration under s 425 of the Corporations Act and a liquidator's remuneration under s 473 of the Corporations Act. Those sections identify factors to which the Court must have regard in determining whether such remuneration is reasonable including, relevantly, the extent to which work performed or likely to be performed was or is likely to be reasonably necessary; the period during which the work was or is likely to be performed; the quality of the work performed or likely to be performed; the complexity (or otherwise) of that work; the extent to which the insolvency practitioner was, or is likely to be, required to deal with extraordinary issues; the extent to which the insolvency practitioner was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; the value and nature of any property dealt with, or likely to be dealt with, by the insolvency practitioner; whether the insolvency practitioner was, or is likely to be, required to deal with specified other persons; the number, attributes and behaviour, or likely number, attributes and behaviour, of the entity's creditors; and, where remuneration is ascertained, in whole or in part, on a time basis, the time properly taken, or likely to be properly taken, in performing the work and whether the total remuneration payable is capped."
10. Ms Whittaker also refers to authority that the remuneration of a Court-appointed receiver may be approved by the Court that appointed that receiver: Re Metal Storm Ltd (subject to Deed of Company Arrangement) [2015] NSWSC 1699 at [11].
11. Ms Whittaker also referred to the observations of Bathurst CJ, in Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459; (2017) 343 ALR 524; (2017) 118 ACSR 333; at [57]-[60], that: "First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in Warner, Re GTL Tradeup Pty Ltd [[2015] FCA 323; (2015) 104 ACSR 633] at [71] it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it. Second, there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. Indeed, as was pointed out in Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCA 64 at [128]-[129] there is a public interest in liquidators bringing recovery proceedings such as proceedings against directors for breach of duty or insolvent trading and proceedings for recovery of unfair preferences. However, the liquidator is obliged to make any decision to bring such proceedings with care, and negligence in the exercise of the power to bring proceedings may lead to a liquidator being deprived of costs: Hall v Poolman supra at [144]-[145]. In making the above comments I am conscious of the criticisms that have been levelled against time based charging. The areas of criticisms generally speaking are first and principally that time spent represents a measure not of the value of the services rendered but of the costs of rendering them and, second, time spent is only one of a number of relevant factors to be considered: see Re Carton [Ltd (1923) 39 TLR 194] at 197; Mirror Group Newspapers [Plc v Maxwell (No 2) [1998] 1 BCLC 638] at 648-652; Re Korda [; Re Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424] at [41]-[45]; Re AAA Financial Intelligence [Ltd (in liq) (No 2) ACN 093 616 445 [2014] NSWSC 1270] at [45]-[47]. There is force in those criticisms. However, it remains the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account the matters referred to in s 473(10). That must include, in my opinion, considering the work done by the liquidator, whether it was reasonable to carry it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, does not seem to me to be beyond the competence of the Court. Further, it should not be concluded from what I have written that a time based calculation will always be appropriate. The task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10). Thus for example, the "Lodestar" approach explained by Finkelstein J in Re Korda supra at [47], may in some circumstances be an appropriate method of undertaking the task: see also Re Clout [[2016] NSWSC 1146] at [134]-[135]."
12. Ms Whittaker also referred to Gleeson JA's helpful summary of the applicable principles, in dealing with an application by a Court-appointed receiver for approval of his or her remuneration, in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540. Ms Whittaker also recognised the relevance of the factors specified in s 425(8) of the Corporations Act to the assessment of remuneration claimed by a Court-appointed receiver, including whether the work performed by the receiver was reasonably necessary; the period during which that work was performed; the quality and complexity of that work; whether the receiver was required to deal with extraordinary issues, or accept a higher level or risk of responsibility than is usually the case; the value or nature of the property dealt with by the receiver; whether the receiver was required to deal with other insolvency practitioners; the number, attributes and behaviour of the company's creditors; and, if the remuneration is ascertained in whole or in part on a time basis, the time properly taken by the receiver in performing the work, and whether the total remuneration payable to the receiver is capped. Ms Whittaker recognised, fairly, that evidence as to the percentage that remuneration constitutes of realisations in an insolvency will at least provide an objective indication of those matters where there ought to be real concern as to whether the remuneration claimed is reasonable: Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above at [56]; Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund and Others above at [50].
13. I am satisfied that work done by Mr Taylor and his staff was reasonably undertaken and I am satisfied that it was proportionate, where the receiverships had a degree of complexity, and I am satisfied that orders should be made approving the Applicants' remuneration in the amounts claimed. Ms Whittaker also points out, and I accept, that the Court has power to make orders for the prospective remuneration of a receiver under s 425(8) of the Corporations Act; see Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) above. As I noted above, Mr Taylor has given evidence of the tasks that remain to be undertaken to finalise the receiverships of Mr Hobbs and Ms Wu, although those tasks are plainly further advanced than was the case when Mr Taylor led his first evidence in support of the application. I am satisfied that the tasks that remain to be performed are appropriate and necessary for finalisation of the receiverships; that the amounts involved are reasonable, and likely to be less than the time costs which would be incurred by the Applicants; and a prospective approval of that remuneration avoids the costs that would be incurred in a further application, involving a relatively small amount of remuneration, after that work was completed. I will therefore approve that prospective remuneration.

Passing of Applicants' accounts as receivers of Mr Hobbs and Ms Wu

1. The Applicants also sought an order under r 26.5 of the Uniform Civil Procedure Rules passing their accounts as receivers in relation to Mr Hobbs and Ms Wu. I am satisfied, by the evidence to which I have referred above, that the basis for the passing of the accounts of the receivers, under or by analogy with r 26.5 of the Uniform Civil Procedure Rules, has been established.

Application for remuneration as liquidators of the Integrity Scheme

1. The Applicants sought an order under ss 473(3) and 601EE(2) of the Corporations Act that the Court approve Mr Taylor's remuneration as liquidator of the Integrity Scheme in the amount of $63,950 plus GST for the period 1 July 2013 to 19 September 2017 and prospective remuneration of up to $30,000 plus GST for the period from 20 September 2017. I was informed that orders approving Mr Taylor's previous remuneration in respect of that scheme had been made by a Registrar of the Court. No order for passing Mr Taylor's accounts was required so far as he was a liquidator rather than a receiver of that scheme.
2. In his affidavit dated 28 September 2017, Mr Taylor refers to the circumstances of his appointment as liquidator of the Integrity Scheme and to distributions made to eligible investors in that scheme, who received $0.739 for each unit held by them in the scheme. He noted that total recoveries made in the Integrity Scheme were over $14,683,344.38 and that, excluding the remuneration sought in this application, his remuneration of $1,603,629.50 plus GST in respect of the period since 2008 had previously been approved by the Court in respect of that scheme. Mr Taylor also referred to the Applicants' application for directions which was determined by my judgment delivered on 30 June 2016, which recognised the complexities and intermingling of funds between several of the schemes including the Integrity Scheme. Mr Taylor also referred to investigations made and work performed in respect of the schemes generally, and to recoveries and the distribution to investors in respect of the Integrity Scheme specifically and noted the amount he currently held as liquidator of the Integrity Scheme. I have also referred to Mr Taylor's evidence as to the manner in which time was recorded above. Mr Taylor set out his accounts of receipts and payments for the Integrity Scheme, and also led evidence of the percentage of the remuneration claimed as against gross realisations in the Integrity Scheme. That evidence was updated by his further affidavit evidence to which I refer below.
3. By a second affidavit dated 13 November 2017, Mr Taylor gave evidence of service of a notice of intention to apply for remuneration on investors in the Integrity Scheme. By his further affidavit dated 25 January 2018, Mr Taylor updated the position as to prospective remuneration claimed in his affidavit dated 28 September 2017, by reference to the fees claimed by him and his staff for the period 20 September 2017 to 22 January 2018, being $7,342 in relation to the Integrity Scheme. Mr Taylor also led evidence as to his review of the relevant bills and of his assessment that the costs incurred to complete the tasks set out in his earlier affidavit, including adjudicating claims and attending to any final distribution to investors in the Integrity Scheme, will exceed the balance of the amount sought for his prospective remuneration in respect of that scheme.
4. By his further affidavit dated 23 April 2018, Mr Taylor further updated the costs claimed in respect of the Integrity Scheme for the period 23 January 2018 to 17 April 2018 and again confirmed the accuracy of time records in respect of the work performed and indicated his belief that the work performed was reasonably necessary in order to finalise each of the appointments. Mr Taylor also led evidence, in respect of this scheme, that the identified tasks were appropriate and necessary to finalise each of the appointments; the sums claimed are unlikely to indemnify him in full for the prospective work to be performed; he considered the prospective amounts sought were reasonable in light of the work that had been carried out and the work that was still to be carried out; and an order for prospective remuneration would avoid the need to make a further application for approval of his remuneration and incurring the associated costs of doing so. Mr Taylor also updated the calculation of the percentage of remuneration to realisations, performed by his staff under supervision, indicating that the remuneration claimed in respect of the Integrity Scheme represented 7.95% of gross realisations, including remuneration allowed in earlier applications.
5. I have referred to the applicable principles in respect of a determination of the Applicants' remuneration above. Ms Whittaker points, in reliance on Mr Taylor's evidence, to the factual complexity of the liquidation of the Integrity Scheme, involving investigations of dealings that occurred over several years, in several jurisdictions, with multiple parties, and the reconciliation of numerous transactions in several currencies, including dealings between various unregistered schemes. Ms Whittaker also points to the legal complexity of the liquidation, which also involved the Applicants commencing proceedings in order to bring about recoveries for the scheme. I am satisfied that the amount of remuneration claimed in respect of the Integrity Scheme is proportionate and appropriate and I will approve that remuneration.
6. Mr Taylor has also given evidence of the tasks that remain to be undertaken to finalise the liquidation of the Integrity Scheme. I am satisfied that the tasks that remain to be performed are appropriate and necessary for finalisation of the appointments; that the amounts involved are reasonable, and likely to be less than the time costs which would be incurred by the Applicants; and a prospective approval of that remuneration avoids the costs that would be incurred in a further application, involving a relatively small amount of remuneration, after that work was completed. I will therefore approve that prospective remuneration.

Priority of remuneration

1. The Applicants also sought an order that they would be justified in paying any amounts in respect of their remuneration in priority to other payments or distributions in relation to the receiverships of Mr Hobbs and Ms Wu and the liquidation of the Integrity Scheme, replicating the priority under s 556 of the Corporations Act.
2. I addressed the question of priority of such remuneration in my earlier judgment in Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund above and observed at [84] that: "In a case where a managed investment scheme which required registration has been conducted in contravention of the Corporations Act, there will be a strong and possibly overwhelming case for the appointment of an independent liquidator to the scheme on a winding up. Plainly, this matter was not one where there was any realistic possibility that the winding up of the schemes could have been left in the hands of their prior management. It seems to me unlikely that insolvency practitioners would, generally, accept appointment to undertake a complex and time consuming liquidation of one or several unregistered managed investment schemes, unless they had confidence that their remuneration, or at least a substantial part of it, would be paid from the assets of the fund or, possibly, by their appointor if those assets were insufficient: compare Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) [2008] FCA 448; (2008) 246 ALR 580 at [19] (referring to United States law); Australian Securities and Investments Commission v Letten (No 23) above at [51]. … an approach of allowing priority to the liquidators' claim to remuneration, liabilities and outgoings is consistent with the approach adopted in s 556 of the Corporations Act."
3. For these reasons, I am satisfied that the Applicants would be justified in distributing the assets of the receiverships and the Integrity Scheme on a basis which gives first priority to the payment of their remuneration, costs, charges and expenses of, and in connection with the receiverships and the winding up of that scheme in priority to the claims of unsecured creditors and investors in the scheme.

Other matters

1. The Applicants did not press an application for a further order that they would be justified in paying any amounts remaining in the receiverships of Mr Hobbs and Ms Wu to ASIC, and Ms Whittaker rightly recognised in the course of submissions that further advertising was likely to be required to identify any creditors of Mr Hobbs and Ms Wu situated outside Australia, and particularly in the countries in which they were resident, before such an order could fairly be made.

Orders

1. I direct the Applicants to bring in Short Minutes of Order to give effect to this judgment within 7 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 May 2018