In the matter of JSMOT Pty Ltd (in liq) (receiver and manager appointed) (No 3) [2022] NSWSC 522

Supreme Court of NSW|2022-05-02|Before: Williams J, Mr J

Introduction

These reasons relate to an interlocutory application filed by Mr Vincent Pirina on 3 December 2021 for determination of his remuneration: 1. in the amount of $6,953 exclusive of GST for work done in his capacity as receiver and manager of the JOG Unit Trust (the Trust); and 2. in the amount of $96,148 exclusive of GST for work done in his capacity as liquidator of the first defendant, JSMOT Pty Ltd (in liq) ABN 48 143 250 079 (the Company) during the period from 1 November 2020 to 31 October 2021.
Mr Pirina also seeks an order that his remuneration as receiver and liquidator, in the amount determined by the Court, be paid out of the assets of the Trust.
The plaintiff, Ms Gillian McCall, is a director of the Company, as is the second defendant, Mr Jeffrey Sharp. At the hearing on 21 March 2022, Ms McCall's solicitor informed the Court that she opposed the application. By the hearing on 2 May 2022, Ms McCall did not oppose the application but her solicitor drew the Court's attention to certain matters relevant to the determination of the application and submitted that whether and in what amount to fix the remuneration was a matter for the Court. Mr Sharp does not oppose the application and did not appear at the hearing on 21 March or 2 May 2022.
At the conclusion of the hearing on 2 May 2022, I made orders substantially in the terms sought by Mr Pirina on the basis that my reasons would be published in due course. These are my reasons.

Applicable legal principles

Pursuant to the trust deed governing the Trust, the office of trustee was vacated upon the Company going into liquidation. However, as identified by Leeming JA in In the matter of JSMOT Pty Ltd (No 2) [2020] NSWSC 1755 at [11]-[12], the Company continues to be a bare trustee of the assets of the Trust despite ceasing to be trustee under the Trust Deed and retains a right of indemnity and exoneration and a lien over the assets of the Trust. In circumstances where the Company did not act in any capacity other than as trustee of the Trust and has no assets other than assets held in its capacity as trustee, and Mr Pirina's work as liquidator has related to the Company in its capacity as trustee and has been directed to the investigation, identification and realisation of Trust assets, Mr Pirina in his capacity as liquidator is entitled to be paid his remuneration from the Trust assets: In the matter of JSMOT Pty Ltd (No 2) at [13]-[15]. As Leeming JA identified in that case (at [5]), the source of the Court's jurisdiction in respect of Mr Pirina's remuneration is derived from: "UCPR r 26.4 (in [Mr Pirina's] capacity as receiver), cl 60-10 of the Insolvency Practice Schedule (Corporations) which was given effect by s 600k of the Corporations Act 2001 (Cth) (in his capacity as liquidator), and, at least insofar as the application turns upon JSMOT's status as former trustee of the JOG Unit Trust and bare trustee of the trust assets, this Court's inherent jurisdiction: see In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 at [19]."
I respectfully adopt the summary of the principles applicable to the application by Gleeson JA in In the matter of BBY Limited (Receivers and Managers Appointed) (in liq) [2021] NSWSC 1299 at [52]-[59]: "Relevant principles: approval of trustee/liquidator remuneration 59. The Court's approach when exercising its inherent equitable jurisdiction to allow remuneration out of trust assets in connection with the administration of a trust fund is described in In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 at [20]-[21], where I said: [20] In allowing remuneration to the liquidator, the Court treats the work done in administering the trust as an incident of the liquidation, and approaches the application for remuneration as analogous to one by an official liquidator for approval of remuneration: Alphena Pty Ltd (in liq) v PS Securities Pty Ltd (ACN 141 021 445) (as trustee of the Joseph Family Trust) [2013] NSWSC 447; (2013) 94 ACSR 160 at [53], [63]-[64]. Accordingly, regard may be had, by analogy, to the factors listed in the now repealed s 473(10) of the Corporations Act (which continues to apply to the administration of Houben by reason of the transitional provisions in the Corporations Act, s 1581(1)). [21] The essential question which arises on the present application, as arises under the applicable provisions of the Corporations Act with respect to court appointed liquidators, is whether the remuneration of which approval is sought is 'reasonable': Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 (Sakr). 53. The essential task of the Court, constituted by a judge, when asked to approve remuneration of a liquidator is encapsulated in the statement by Barrett J in Re Anderson Group Pty Ltd [2002] NSWSC 764; (2002) 20 ACLC 1607 at [12]: In the ordinary course, the process of determination comes down essentially to ensuring that the work upon which the claim was based was work undertaken in the due course of administration and that the amount claimed for having done that work is a fair and reasonable reward for it. 54. That proposition was repeated by the Court of Appeal in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 (Sakr) at [69]-[72], where Bathurst CJ (the other members of the Court agreeing) said that the essential task of the Court is to allow reasonable remuneration. 55. As explained in Re Houben Marine at [23]-[25], several of the propositions in Sakr have relevance, by analogy, to an application such as the present for approval of a liquidator's remuneration out of the assets of a trust of which the company in liquidation is a trustee. 56. First, the onus is on the liquidator to establish that the remuneration claimed is reasonable. It is the function of the Court to determine the remuneration by considering the material provided and by bringing an independent mind to the relevant issues: Sakr at [54]. 57. Second, the question of proportionality - in terms of work done as compared with the size of the property the subject of the administration or the benefit to be obtained from the work - is an important consideration in determining reasonableness: Templeton v Australian Securities and Investments Commission [2015] FCAFC 137 at [32]; (2015) 108 ACSR 545. The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed: Templeton citing McLur JA in Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams [2008] WASCA 61; (2008) 65 ACSR 521 at [47]. This is what is encompassed in assessing the value of the services rendered: Sakr at [55]. 58. Third, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the liquidator is not entitled to be remunerated for it. Provided it was reasonable to carry out the work and the amount charged is reasonable, there is no reason a liquidator should not recover remuneration for undertaking such work: Sakr at [57]-[58]. 59. Counsel for the liquidators submitted that the present applications are analogous to one by a liquidator for approval of remuneration and that the Court may have regard to the factors listed in the statute for approval of the liquidators' remuneration. So much can be accepted insofar as the factors in s 60-12 of the Insolvency Practice Schedule, being Schedule 2 to the Corporations Act, may be taken as an indication of the types of considerations that inform the question of reasonableness in the present case. Section 60-12, which applies to external administrators of a company including liquidators, lists the following relevant factors: 60-12 Matters to which the Court must have regard In making a remuneration determination under paragraph 60-10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60-11, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work by the external administrator was necessary and properly performed; (b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed; (c) the period during which the work was, or is likely to be, performed by the external administrator; (d) the quality of the work performed, or likely to be performed, by the external administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator; (f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator; (i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors; (j) if the remuneration is worked out wholly or partly on a time cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work; (k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers; (l) if: (i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and (ii) the matter is, or includes, remuneration of the external administrator; the contents of the report on the review that relate to that matter; (m) any other relevant matters."

Consideration and determination

In his affidavits sworn on 2 December 2021 and 1 April 2022, Mr Pirina has described the categories of work undertaken in the receivership and winding up that is the subject of the present application. Those descriptions are consistent with the entries in the time records exhibited to Mr Pirina's affidavit sworn on 2 December 2021, which I have reviewed in a broad way.
In relation to the receivership, the present application concerns remuneration of $76 for one telephone call seeking information concerning the Property and $6,877 for general administration work which broadly consisted of internal reviews, preparation and lodgement of tax returns, periodic ASIC lodgements, correspondence, reconciliations and similar matters.
In relation to the winding up, the present application concerns remuneration of: 1. $64,813 for investigations, most of which relates to the public examination of Mr Sharp and the review of books and records of the Company and other documents produced to the liquidator prior to, during and after the examination; 2. $20,073 for general administration, which broadly relates to internal reviews and discussions, preparation and lodgement of tax returns, periodic ASIC lodgements, correspondence, reconciliations and incidental tasks and also includes some correspondence with solicitors that might be better characterised as part of the investigation work but has not been charged twice; 3. $2,874 for liaising with creditors, which relates principally to communications with Ms McCall and her external advisers in relation to the public examination and Mr Sharp's proof of debt; 4. $914 for inquiries relating to the disputed assets; 5. $7,473 for work involved in preparing for the remuneration application that was determined by Leeming JA on 7 December 2020 and some preparatory steps for the present application.
The remuneration claimed has been calculated on the basis of time charging at hourly rates of $610 for Mr Pirina, $580 for a director with 10 years' experience and specialist skills, $500 per hour for a senior manager with 10 years' insolvency experience and accounting qualifications, $460 for a manager with 5-7 years' experience and lesser rates for assistant managers ($430), senior staff ($330-$380, depending on experience), intermediate staff ($290), graduates ($250) and cadets and administrative staff ($140). I accept Mr Pirina's evidence that those rates are within the range of rates charged in the insolvency industry. I note Mr Pirina's evidence that it is standard practice for tasks in an external administration of this nature to be delegated to members of his staff. Based on my broad review of the time records exhibited to Mr Pirina's affidavit sworn on 2 December 2021, I accept that this practice has been adopted during the receivership and the winding up.
Having regard to the descriptions of the work in Mr Pirina's affidavit and in the time sheets, and taking into account the inadequacy of the Company's books and records, the difficulties encountered by Mr Pirina in obtaining those books and records and other relevant documents, the protracted dispute between Ms McCall and Mr Sharp about the disputed assets and intermingling of Company funds and Mr Sharp's funds in his personal bank account, I accept Mr Pirina's evidence that the work done was necessary for this receivership and liquidation, subject to one qualification that I will identify below. Subject to that same qualification, I also accept Mr Pirina's evidence that the work was done in a reasonable manner by staff with the appropriate level of seniority and that the amount charged for the work at the hourly rates set out above is reasonable.
I reject Ms McCall's submission that the public examination was not necessary, and that the re-adjudication of proofs of debt already adjudicated in the receivership is not necessary. In my view, the examination was necessary. In the circumstances that I have outlined earlier in these reasons, it is very difficult to see how the issues concerning the disputed assets might have been resolved without that examination and the additional documents obtained through the examination process. Moreover, as I referred to at [22] above, Ms McCall was supportive of the liquidator examining Mr Sharp. Subject to the liquidator's completion of the review of the most recent tranche of documents provided by Mr Sharp, it appears that the examination and additional documents obtained are likely to result in a significant reduction in the net amount for which Mr Sharp's debt is admitted. Any such reduction will be to Ms McCall's benefit.
I also reject Ms McCall's submissions that characterised the liquidator's process of revisiting his earlier adjudications of proofs of debt as receiver as a delay in adjudicating the proofs or "re-starting" the adjudication process. In all of the circumstances referred to earlier in these reasons, the liquidator has properly recognised that the proofs of debt need to be revisited in light of the significant additional material available to him that was not available at the time he made the adjudications as receiver. The genesis of this problem is that the Company, under the directorship of Ms McCall and Mr Sharp, failed to keep adequate books and records and allowed its funds to intermingled with funds of Mr Sharp.
The qualification to which I referred at [33] above is that the evidence does not establish that it was necessary and reasonable for the liquidator to incur remuneration of $7,473 principally in preparing for an application to have his remuneration in respect of an earlier period fixed in the sum of $60,453. In circumstances where the liquidator had engaged external legal representatives to prepare and conduct that application, it should not have been necessary for the liquidator to undertake work for which the remuneration claimed would exceed 10 per cent of the remuneration that was the subject of the application. I accept that some work was required, but I consider it appropriate to reduce this component of the remuneration now claimed to $3,000. That will result in a reduction of the total remuneration fixed for the liquidator's remuneration for the period from 1 November 2020 to 31 October 2021 to $91,675 (plus GST).
As I have already mentioned, approval of the remuneration the subject of the present application will result in total remuneration to date of approximately 24 per cent of the assets that have been realised and may yet be realised in the receivership and winding up. I consider that this confirms the reasonableness of the remuneration in all of the circumstances referred to above and particularly the need for Mr Pirina and his staff to adjudicate Mr Sharp's proof of debt and investigate the amount to be set off against the amount owing to him by the Company. That is so, despite the fact that the receivers and liquidator have incurred significant legal expenses in addition to the remuneration the subject of this application and previous applications.
In his affidavit sworn on 28 March 2022, Mr Pirina has given evidence of the nature of the work undertaken by the legal representatives and has deposed that he has reviewed their invoices and has been satisfied at all times that their work was reasonably necessary for the purpose of the receivership and liquidation and that the invoices were properly payable. Having regard to the seemingly intractable disputes between Ms McCall and Mr Sharp, the nature of those disputes, the inadequacy of the Company's books and records, the public examination of Mr Sharp and the voluminous documents belatedly provided to the liquidator, I accept Mr Pirina's evidence that the legal work that he describes was reasonably necessary for the purpose of the receivership and the winding up.
Ms McCall's solicitor drew the Court's attention to the fact that further remuneration and costs will be incurred before the winding up is completed and so the total remuneration will exceed 24 per cent of the assets realised. I accept that, but I also accept Mr Pirina's evidence that that he is in the process of adjudicating Mr Sharp's proof of debt submitted in the winding up and expects to reach a negotiated settlement with Mr Sharp concerning the disputed assets in the coming weeks. On that basis and assuming no unforeseen complexities, Mr Pirina estimates that the liquidation may be concluded "in the next two months or so".
Whether the total remuneration as at the completion of the winding up is reasonable and proportionate is a matter that will need to be addressed at that time based on all relevant circumstances which will then be known. On the basis of the material presently before the Court, the amount of the remuneration that is the subject of the present application is reasonable taking into account all relevant circumstances, including the total remuneration approved by the Court to date and the fact that some work remains to be done in the winding up of the Company.
For those reasons, the following orders were made at the conclusion of the hearing on 2 May 2022 (noting that counsel for Mr Pirina did not wish to be heard in opposition to orders 4 to 6): 1. Order that the remuneration of the Applicant, Mr Vincent Pirina, for acting in his capacity as receiver and manager of the assets and undertaking of the JOG Unit Trust for the period from 1 November 2020 to 31 October 2021 is fixed in the amount of $6,953 plus GST. 2. Order that the remuneration of the Applicant, Mr Vincent Pirina, for acting in his capacity as liquidator of JSMOT Pty Ltd ABN 48 143 250 079 atf the JOG Unit Trust for the period from 1 November 2020 to 31 October 2021 is fixed in the amount of $91,675 plus GST. 3. Order that the Applicant be permitted to draw the remuneration referred to in orders 1 and 2 above from the assets of the JOG Unit Trust. 4. Order that the Applicant pay the plaintiff's costs of the court appearance on 21 March 2022. 5. Order that the Applicant pay his own costs of the court appearance on 21 March 2022. 6. Order that the Applicant is not permitted to recover from the assets of the JOG Unit Trust the costs referred to in orders 4 and 5 above.

Amendments 12 May 2022 - 12 MAY 2022 - Order, pursuant to r 36.17 of the Uniform Civil Procedure Rules 2005 (NSW), that order 1 made by Williams J on 2 May 2022 be amended to read:

"Order that the remuneration of the Applicant, Mr Vincent Pirina, for acting in his capacity as receiver and manager of the assets and undertaking of the JOG Unit Trust for the period from 1 November 2020 to 31 October 2021 is fixed in the amount of $6,953 plus GST." 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: 12 May 2022

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Legislation Cited (2)

Cases Cited (10)