In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709

Distribution of surplus

1. So far as concerns the application for leave to distribute surplus, the essential function of the Court on such an application is, first, to be satisfied that there is in fact a surplus available for distribution and, secondly, to be satisfied that the appropriate contributories to whom it is to be distributed have been properly identified.
2. The reason why advertisement of an application for leave to distribute surplus is required under (NSW) Supreme Court (Corporations) Rules 1999, r 7.9, is fundamentally to ensure that all creditors and contributories have an opportunity to have their claims considered before the distribution of any surplus. On such an application, the liquidator is expected to prove that there is a surplus, who is entitled to the surplus, and that proper steps have been taken to ensure that those who might have a claim on it have been notified. [1]
3. In the present case, the liquidator says that on 10 December 2014, he paid all creditors of the company 100 cents in the dollar and that, after paying all creditors, the company now has no debts, and the only asset is valued at $517,830.
4. The evidence does not show in detail what one would like to see as proof of what steps have been taken to call for debts, nor depose to the liquidator being satisfied that there are no other creditors or potential creditors; but I will take that as being implicit in the liquidator's evidence that he has paid all creditors and that, after paying them, the company now has no debts.
5. In light of some doubts that arose as to the identity of the contributories and, in particular, the shareholding of one of the contributories, the liquidator has taken proper steps to settle a list of contributories, giving notice to those who might be interested. The liquidator has received no objections to the list so settled. I am satisfied that, in that way, the appropriate contributories entitled to surplus have been identified.
6. The precise amount of surplus available for distribution will depend inter alia on the amount of remuneration that is approved.
7. The liquidator seeks approval of an amount of $102,233.02, but that includes an amount of legal costs paid or payable by way of disbursement to the liquidator's solicitors. Ordinarily, the Court approval of a liquidator's remuneration does not include disbursements: the liquidator's right to indemnity in respect of out-of-pocket expenses depends on the general law relating to a trustee's right of indemnity. [2] Whether, and to what extent, a liquidator is entitled to recoup a disbursement from the estate, ordinarily arises upon the taking of a trustee's accounts, or upon a misfeasance summons arising from a liquidator's accounts. [3] Sometimes, a liquidator may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement. I will treat the liquidator's application in respect of disbursements in this case on that basis.
8. The liquidator has set out in his affidavit evidence of the amount which he has paid, or expects he will have to pay his solicitors, and has annexed the itemised accounts of the solicitors for the work done. Although, I am afraid I must say that, for an application of this relative simplicity, $67,000 seems to me a large amount, the liquidator has deposed that he has scrutinised the accounts provided by his solicitors, and considers them to be reasonable. Bearing in mind that a liquidator owes fiduciary obligations to the creditors and contributories to protect their interests in that respect, there being no reason to doubt that the liquidator has been alert to and conscious of those obligations; that notice of the application and the amount sought has been provided to the contributories who will be the persons most affected by the disbursement; that seems to me sufficiently to establish the propriety of those disbursements.
9. Accordingly, I will in due course make an order to the effect that the liquidator would be justified in paying to Colin Biggers & Paisley the sum of $66,939.87 in respect of legal costs. To what extent that amount is unpaid, and is to be drawn out of the remaining balance available in the liquidation, is not entirely clear, and that can be addressed when formal orders are made.

Liquidator's remuneration

1. As to the liquidator's remuneration, the creditors approved remuneration to a total of approximately $197,000, which the liquidator has drawn in full. In addition to that amount, the liquidator seeks further remuneration of $63,577.80 in respect of work done from 3 November 2014 - that amount being calculated after deduction of $34,870 already paid out of the prior creditors' approval.
2. The application is made to the Court under Corporations Act, s 473(3)(b)(ii), in circumstances where it is not possible for a creditors' meeting to be convened to approve further remuneration, as all the creditors have been paid in full.
3. Liquidators are entitled to reasonable remuneration for their services in winding-up the company. The Court has a very wide discretion in allowing and fixing the level and basis of remuneration. [4] The liquidator bears the onus of establishing that the work was properly performed in the due course of administration, and that the amount claimed is a fair and reasonable reward for it. [5]
4. Regard is to be had to the factors listed in Corporations Act, s 473(10). Remuneration may be by way of commission on assets realised and/or assets distributed, or time based. Liquidators will not necessarily be allowed remuneration at their firm's standard hourly rates for time spent - particularly in smaller liquidations where questions of proportionality, value and risk loom large, and liquidators cannot expect to be rewarded for their time at the same hourly rate as would be justifiable when more property is available.
5. As I endeavoured to explain in In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270 (at [45]): The liquidator's remuneration claim is based on his firm's quoted standard hourly rates. However, what is reasonable remuneration cannot be assessed solely by the application of a liquidator's quoted standard hourly rates to the time reasonably spent. Although virtually every application for remuneration that the Court sees is made on that basis, regardless of the amount of property involved, the application of a standard hourly rate to liquidations of diverse size and complexity cannot reflect some of the factors referred to in s 504(2), and in particular (d) the quality of the work performed, (g) the degree of risk and responsibility involved, and, above all, (h) the value and nature of the property involved. It does not reward liquidators for value, but indemnifies them against costs. It disregards considerations of proportionality. Thus it is wrong to assess "reasonable remuneration" by reference only to time reasonably spent at standard rates, which though a relevant consideration is only one of several, and should not be regarded as the default position or dominant factor, and is to be considered in the context of other factors, including the risk assumed, the value generated, and proportionality.
6. While not without its shortcomings, ad valorem remuneration is inherently proportionate, and incentivises the creation of value rather than the disproportionate expenditure of time. Remuneration on an ad valorem basis was once conventional, and is plainly still contemplated by the relevant statutory provisions, despite the relatively recent prevalence of time-based remuneration. In particular, Corporations Act s 473(3) provides, in respect of a court-appointed liquidator, that a liquidator is entitled to receive remuneration "by way of percentage or otherwise" (emphasis added).
7. In Re Carton Ltd, [6] a proposal that remuneration be 5% on realisations and 5% on distributions was described as one which would require "special circumstances which would justify the fixing of such a large commission"; about half that amount was allowed. In In the matter of Hellion Protection Pty Ltd (In Liquidation), [7] in dismissing a liquidator's application for review of the remuneration which had been approved by the creditors, subject to a ceiling, I said: 9 As it seems to me, taking a general view, the liquidator should be allowed 10 percent on the first $50,000 of realisations, which would be about $4,500, but given that the statute provides for a $5,000 starting point, I would start with $5,000. On top of that, while the GEERS receipts are not in truth receipts of the liquidation, it is fair to acknowledge that the liquidator has done work in connection with them, and I would allow the liquidator 5 percent on the GEERS receipts of approximately $250,000, which would be $12,500. 10 Accordingly, were I approaching this matter afresh, I would be inclined to allow the liquidator not more than about $20,000 in remuneration. However, as the creditors approved his remuneration, and no creditor has sought to review it, I would not disturb what has already been approved. But that approval was subject to a cap, and in a liquidation of this scale, I see no occasion to increase the amount above that cap.
8. In In the matter of Gramarkerr Pty Limited (No 2), [8] where the liquidator had on his application been appointed as receiver of a trust of which the company was trustee, and had negotiated and sold the trust real property, I said: 5 The liquidation had the additional unusual aspect of requiring an application to the Court for the appointment of the liquidator as receiver. Aside from that, although it can be said that the defendants/directors were less than cooperative, that of itself is hardly an unusual aspect of liquidations. … 10 So far as remuneration is concerned the liquidator, on what I take to be a time-cost basis, originally claimed approximately $64,000 for remuneration, which would represent about 12.5% of the total of the gross realisation of $495,000. Given the considerations - particularly that of proportionality - to which I referred inter alia in In the matter of AAA Financial Intelligence Ltd (in liq) No 2 [2014] NSWSC 1270, that seems to me to be a disproportionally high amount, notwithstanding the additional complexity involved in the application for appointment as a receiver. I would have been inclined to allow 10% on the first $100,000 and 5% on the balance, which would have generated remuneration of $27,750. That exceeds the $24,196.45 that the liquidator is now prepared to accept for remuneration. Accordingly, I am satisfied that the claim, reduced as it now is, is justified.
9. In the present case, the liquidation was one of what was accurately described by counsel as a "small family company". It had only one significant asset - real property at Silverwater, which the liquidator realised for $3.72 million. He retained agents and solicitors to negotiate and act on that sale. Although the evidence does not disclose how they were remunerated, it may be presumed that they were remunerated at ordinary commercial rates. The significance of that is that, while entirely proper and appropriate, it represents a significant transfer of risk and responsibility in respect of that transaction to others, for which out-of-pocket expenses were incurred by the liquidator, in respect of which he has been or will be indemnified.
10. Out of the proceeds, the liquidator paid secured creditors, amounting to about $2 million. He subsequently paid the unsecured creditors, some $904,000. The evidence does not disclose that there was anything particularly difficult or challenging about that, but the Court is informed and accepts from counsel that, in fact, proofs of debt were disputed. The liquidator received no co-operation from the directors, or the company's accountants; but it has to be said that, as I observed in Gramarkerr, that is hardly an unusual aspect of a liquidation.
11. The liquidator has been required to go through the process of settling a list of contributories, and that is a matter which has arisen after the latest approval of remuneration by the creditors' meetings.
12. The application to the present liquidation of some of the rates that have been allowed in the cases to which I have referred, suggests that an amount in the order of $195,000 would be proper remuneration for this liquidation. Thus, if one allows 2.5% on realisations of $3.72 million, and 3% on distributions of about $3.33 million, that produces a figure in the $190,000s; or alternatively, using the Gramarkerr scale of 10% on the first $100,000 of realisations, and 5% thereafter, that also produces a sum in the mid-$190,000s. It is to be borne in mind that, normally, the larger the liquidation, the lower the rate of commission will be: rates of commission will decline, as the amount of assets increase, on a sliding scale. Thus, it might be thought that application of the Gramarkerr scale in these circumstances would be generous.
13. Having regard to those indications, it seems to me that remuneration of $200,000 in this liquidation would be ample reward, and I would be inclined to fix that amount, but for two considerations.
14. One of those considerations is that notice of this application has been given to the contributories, and they have not made any objection to it. That does not mean that the application should proceed effectively by a default because it is not a default procedure, but involves an exercise of the court's supervisory jurisdiction over its officers. Quite apart from opposition, the court has a responsibility to protect the interest of the contributories. Nonetheless, the absence of opposition by those who have an interest in it, having been given an opportunity to object, is a relevant consideration.
15. The other is that I accept that there has been additional work occasioned that was not anticipated at the time of the 3 November 2014 approval, and that that has been necessitated by the emergence of the issue about the identity of the contributories and the necessity to settle a list of contributories. On that basis, I am prepared to allow some additional remuneration over and above that which has already been approved by creditors, but not by any means the full amount claimed. I propose to approve $20,000 in addition to that which has already been approved by the creditors.
16. With those indications, as far as disbursements and the remuneration is concerned, it should be possible to calculate what remains to be paid out of the balance standing to the credit of the liquidation, and to calculate the amount that should be distributed to the contributories.

Orders

1. The Court orders that: 1. Pursuant to Corporations Act, s 488(2), the plaintiff has special leave to distribute the surplus of assets in the liquidation of Sakr Nominees Pty Limited, in accordance with the document initialled by me, dated this day, and placed with the papers. 2. Pursuant to Corporations Act, s 473(3)(b)(ii), the liquidator's remuneration for the period 3 November 2014 to finalisation of the liquidation inclusive, is determined to be $20,000, including GST. 3. Pursuant to Corporations Act, s 479(3), the liquidator would be justified in paying or retaining the sum of $66,939.87, in respect of legal costs of Colin Biggers & Paisley. 4. The balance of the proceedings is adjourned to 11 April 2016 at 9.45am in the Corporations' Judge Motions List for consideration of the application for a release and deregistration.

Endnotes

1. Re Cardiff Coal Company [2014] NSWSC 1590 at [37]
2. Venetian Nominees Pty Limited v Conlan (1998) 20 WAR 96 at 100; Re Stockford Ltd [2004] FCA 1682; (2004) 52 ACSR 279 at 296, para 59; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, para 14.
3. Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 at 662; Venetian Nominees Pty Limited v Conlan (1998) 20 WAR 96 at 100; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, para 14.
4. Re Wm Rose & Co Ltd (1897) 3 ALR (CN) 65 at 66; Re Stockford Ltd [2004] FCA 1682; (2004) 52 ACSR 279 para 38; Universal Distributing Co Ltd (in liq), Re [1933] HCA 2; (1933) 48 CLR 171; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 [2014] NSWSC 1004 para 18.
5. Re Anderson Group Pty Ltd [2002] NSWSC 764; (2002) 20 ACLC 1607; In the matter of AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270 para 26.
6. Re Carton Ltd (1923) 39 TLR 194.
7. In the matter of Hellion Protection Pty Ltd (In Liquidation) [2014] NSWSC 1299.
8. In the matter of Gramarkerr Pty Limited (No 2) [2014] NSWSC 1405. 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: 02 June 2016