In the matter of Tradercobb Pty Ltd (in Liquidation) [2024] NSWSC 1167

Background

1. Tradercobb was incorporated on 20 December 2017 and initially had two directors, Mr Pino Tedesco and Mr Craig Cobb. Mr Tedesco resigned on 8 February 2023 and Mr Cobb remains a director.
2. Tradercobb operated a business educating on the trading of cryptocurrency as well as undertaking its own trading on an exchange platform known as FTX. Commissions were earned at a rate of 40% of FTX's trading fees on trades executed by clients of Tradercobb.
3. The primary asset of Tradercobb was cryptocurrency held in wallets throughout block chain networks.
4. In November 2022, administrators were appointed to FTX Express Pty Ltd and FTX Australia Pty Ltd. At around the same time, administrators were also appointed to related FTX entities incorporated in the US and the Bahamas.
5. Tradercobb was placed into voluntary administration on 20 February 2023, and into liquidation on 27 March 2023.

Relevant Principles

1. Section 60-5 of the IPSC set out in Schedule 2 to the Corporations Act 2001 (Cth) (the Act) provides that an external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator.
2. Section 60-10 of the IPSC provides that remuneration determinations may be made by, inter alia, the Court.
3. Section 60-10(4) provides that, if a determination under this section specifies that the external administrator is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of remuneration worked out on a time-cost basis that the external administrator is entitled to receive.
4. In determining the amount of such remuneration, the Court must have regard to the matters specified in s 60-12, namely: 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.
5. Those matters overlap with the matters which have traditionally been taken into account in assessing an insolvency practitioner's remuneration, as summarised by Black J in Re Sakr Nominees Pty Limited [2017] NSWSC 668 at [23]-[25]: "A liquidator is entitled to reasonable remuneration for his or her services and the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable and, in determining a liquidator's reasonable remuneration, the Court will have regard to the factors specified in s 473(10) of the Corporations Act, to which I refer further below. The Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable; the liquidator must lead evidence in sufficient detail that the Court can determine that question; and the Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred by the liquidator: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102-103. Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the 'value' of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors: Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144 at [64]; Macks v Maka [2015] SASC 200; (2015) 110 ACSR 279 at [52]-[66]; Warner, Re GTL Tradeup Pty Ltd (in liq) [2015] FCA 323; (2015) 104 ACSR 633 at [70]-[71]; Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545. Most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided: Venetian Nominees Pty Ltd v Conlan above; Templeton v Australian Securities and Investments Commission above; Warner, Re GTL Tradeup Pty Ltd (in liq) above. There has been a degree of concern as to time-based remuneration, over a considerable period, although it must be accepted that remuneration on that basis is now more common. ... In Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above, Bathurst CJ (with whom the other members of the Court of Appeal agreed) observed (at [54]) that the onus is on a liquidator to establish that the remuneration claimed is reasonable, and it is the Court's function to determine that remuneration by considering the material provided to it and bringing an independent mind to bear on the relevant issues; that many of the factors specified in s 473(10) of the Corporations Act have the concept of proportionality as an underlying theme, and that concept is an important consideration in determining whether remuneration is reasonable, so that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed (at [55]); and that the fact that work does not increase the funds available for distribution to creditors or contributories does not mean that the liquidator is not entitled to be remunerated for it, where it was reasonable to carry out that work and the amount charged is reasonable (at [57]-[58]). ..."
6. The Liquidator also referred to the recent summary of principles by Cheeseman J in Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 1203 at [27]-[31]: "In the absence of a determination by members, creditors, or a committee of inspection, the burden lies with the liquidator to establish that the remuneration claimed is fair and reasonable: Re Sallway, Mossgreen Pty Ltd (in liq) (remuneration of liquidators) [2019] FCA 1771; (2019) 140 ACSR 331 [9] (Perram J); Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 [54] (Bathurst CJ). The court's function is to determine that remuneration by reviewing the relevant material and bringing an independent mind to bear on the relevant issues: Sanderson, [54]. In determining an application, it is not necessary for the court to undertake an item by item assessment, but the court may have regard to the rates of charge put forward by an external administrator, the times taken by employees and that external administrator in undertaking the administration and the total remuneration claimed: Re Owen; RiverCity Motorway Pty Ltd (admins apptd) (recs and mgrs apptd) v Madden (No 2) [2012] FCA 312 [22]-[23] (Logan J). Each of the relevant factors in subsection 60-12 of the [Insolvency Practice Schedule] must be considered: Sanderson, [53]… … The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed: Sanderson, [55]. Even where work is undertaken in an unsuccessful attempt to recover assets, provided it was reasonable to carry out the work and the amount charged is reasonable, a liquidator is entitled to remuneration for that work: Sanderson, [58]. As explained in In the matter of Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2020] NSWSC 901 at [38], Black J stated: 'It is not the Court's role… to undertake a line by line review of the relevant narratives in an insolvency practitioner's billing record, but the Court will generally review the relevant narratives in a broad way in order to satisfy itself that they support the other evidence led in respect of the claimed remuneration.'"

Past costs of Administration

1. On 20 February 2023, the creditors approved remuneration of the administrator in an amount of $52,685 plus GST, with a further $25,000 approved through to the conclusion of the administration.
2. As matters transpired, the administrator performed work, on a time costed basis, of $31,517.50 in respect of the period through to the end of the administration.
3. The present application seeks the Court's approval for the amount of $6,517.50 for work done above the amount previously approved.
4. The Liquidator has provided detailed time costing records for the work done in the course of the administration, with narratives. The Liquidator has also provided a summary of work done in various work streams by reference to individual staff members and their rates. In addition, the Liquidator has provided in his affidavit a description of the tasks undertaken in respect of the various work streams performed in the administration.
5. The estimate previously given for the amount of work required through to the conclusion of the administration was exceeded largely as the result of additional work being required on creditor claims than had been anticipated, due in part to poor documentation.
6. In his affidavit, the Liquidator addressed each of the factors in s 60-12 so far as concerns the work which was undertaken during the period of the administration. I have had regard to each of those factors, and the Liquidator's evidence relating to each of those factors.
7. I am satisfied on the basis of the Liquidator's evidence that the work undertaken was necessary and was properly performed. I am also satisfied that the work undertaken was complex, and from my review of the time records, have no reason to doubt that the work was undertaken by persons of appropriate seniority, and that the time taken to perform that work was appropriate.

Past costs of Liquidation

1. The Liquidator sought an amount of $151,133 in respect of his remuneration for work done in the liquidation up to 30 June 2024 (comprising $79,935.50 in respect of the period from 27 March 2023 to 30 April 2024, and $71,197.50 in respect of the period from 1 May 2024 to 30 June 2024).
2. Again, the Liquidator provided detailed time narratives in respect of the work done in this period; copies of the invoices issued in respect of that work; and a summary of the hours performed by reference to the various streams of work, the staff performing that work, and the seniority and rates of those staff.
3. It should be noted that whereas the summary shows that, on a time-cost basis, work in an amount of around $176,132.50 was performed by the Liquidator and his staff, the amount of the claim was subsequently reduced by some $25,000 to the amount presently sought.
4. In his statutory report, and in his affidavit, the Liquidator provided a detailed description of the work undertaken in each stream.
5. Further, in his affidavit, the Liquidator addressed each of the factors in s 60-12 so far as concerns the work undertaken during the period of the liquidation of Tradercobb.
6. The Liquidator identified a number of complicating factors impacting the liquidation of Tradercobb. These included: 1. Assessing cross border assets involving numerous international external administrators (that is, the FTX group assets); 2. Dealing with Mr Cobb and Mr Tedesco, in circumstances where their relationship had broken down; 3. Managing complex record-keeping systems; 4. Determining the viability of incomplete records held across various platforms; 5. Difficulties in ascertaining intellectual property assets which were subject to various impediments to sale; 6. Investigating and understanding Tradercobb's unconventional business approach, which involved an educational platform that transitioned into generating affiliate revenue through an investment platform; and 7. Seeking documents to assess employee and contractor claims, and superannuation claims raised by former contractors.
7. I have considered each of the factors in s 60-12, and the Liquidator's evidence addressing each of those factors. I am satisfied on the basis of the Liquidator's evidence that the work undertaken during the liquidation was necessary and was properly performed. I am also satisfied that the work undertaken was complex, and from my review of the time records, have no reason to doubt that the work was undertaken by persons of appropriate seniority, and that the time taken to perform that work was appropriate.

Future work

1. Finally, the Liquidator sought an amount of $50,000 for future remuneration through to the conclusion of the liquidation of Tradercobb.
2. The Liquidator identified the steps to be taken in order to complete the liquidation and bring about a return to creditors, and his estimate of the time required to perform those tasks. Again, having considered each of the factors in s 60-12 and the Liquidator's evidence, I am satisfied on the basis of the Liquidator's evidence that this work is likely to be necessary and have no reason to doubt the Liquidator's estimates of the time required for this work and the resources required to complete this work.

Proportionality

1. As the Liquidator acknowledged, and as set out in the authorities to which I have referred, one matter which is necessary to address is the issue of proportionality.
2. If the Court approves remuneration in the amount sought by the Liquidator, the result will be, when account is taken of the remuneration previously approved in the administration, that the total remuneration would represent 77% of the amount recovered to date. (That depends on an assumption which, as noted below, I have not determined, that the realised assets represent property of the company.)
3. The Liquidator acknowledged that this is a high percentage. However, the Liquidator has already completed the work required to realise further assets from the cross-border cryptocurrency platforms in the USA and Bahamas. If these further assets are realised in the amount estimated by the Liquidator (of around $313,000), then the percentage of remuneration will reduce to around 40%. Further, I accept that, on the evidence before me, it is appropriate for the Liquidator to have performed the work required to realise these further assets, given that any such realisation would materially increase the assets available for distribution.
4. From the assets realised to date, it is expected that all unsecured creditors, including the Australian Taxation Office, will be paid in full.
5. Finally, as previously noted, all creditors and shareholders of Tradercobb were provided with notice of this application, and the supporting evidence. None has appeared to oppose the remuneration sought and none has, in correspondence, raised any concern about, or criticism of, the amount sought.
6. On the basis of the matters outlined above, and having regard to the Liquidator's evidence in support of the application, I am satisfied that it is appropriate to approve remuneration in the amount sought by the Liquidator.

Dispute regarding title to assets

1. At the commencement of the hearing, Mr Winston appeared on behalf of the former director of Tradercobb, Mr Tedesco, who is also a creditor. Mr Tedesco did not oppose the relief sought by the Liquidator, but noted that he claims that certain moneys which the Liquidator includes in the assets realised in the liquidation represent Mr Tedesco's property, and are not available for payment of the Liquidator's remuneration. I refer to the property in question as the Disputed Funds.
2. The Liquidator had, in his affidavit, stated an intention to pay his remuneration out of the realised assets (which include the Disputed Funds). Mr Tedesco was concerned to ensure that it was not subsequently suggested that there was an Anshun estoppel by reason of his failure to contest the question of title to the Disputed Funds in this proceeding.
3. By the present application, the Liquidator seeks orders that his remuneration be fixed in a certain amount and that this remuneration be paid from the assets of Tradercobb. The Liquidator accepted that the determination of his application would not involve any determination regarding the identity or quantum of the assets of Tradercobb that are available for payment of that remuneration, and therefore would not involve any determination regarding entitlement to the Disputed Funds.
4. In those circumstances, and to avoid any subsequent issue regarding whether or not there was an Anshun estoppel, Mr Tedesco sought, and the Liquidator did not oppose, a notation to the orders to the effect that the determination of the Liquidator's application does not determine any right or title to, or interest in, the assets referred to in paragraph 72 of the Liquidator's affidavit of 6 August 2024 (being the Disputed Funds). I was satisfied that such a notation should be made.

ORDERS

1. For those reasons, I make the following orders: 1. Dispense with the requirement for compliance with rule 9.2(2) and 9.2(6)(d) of the Supreme Court (Corporations Rules) 1999 2. Order, pursuant to s 60-10 of the Insolvency Practice Schedule (Corporations) (IPS) to the Corporations Act 2001 (Cth), that the First Plaintiff is entitled to receive, for necessary work performed by him in relation to the admission of the Second Plaintiff for the period of 15 March 2023 to 27 March 2023, calculated on a time cost basis in accordance with the hourly rates of Balance Insolvency, as detailed in the First Plaintiff's statutory report to creditors dated 6 June 2024, the amount of $6,517.50 (plus GST) from the assets of the Second Plaintiff. 3. Order, pursuant to s 60-10 of the IPS, that the First Plaintiff is entitled to receive, for necessary work performed by him in relation to the liquidation of the Second Plaintiff for the period of 27 March 2023 to 30 April 2024, calculated on a time costs basis in accordance with the hourly rates of Balance Insolvency, as detailed in the First Plaintiff's statutory report to creditors dated 6 June 2024, the amount of $79,935.50 (plus GST) from the assets of the Second Plaintiff. 4. Order, pursuant to s 60-10 of the IPS, that the First Plaintiff is entitled to receive, for necessary work performed by him in relation to the liquidation of the Second Plaintiff for the period of 1 May 2024 to 30 June 2024, calculated on a time costs basis in accordance with the hourly rates of Balance Insolvency, as detailed in the First Plaintiff's statutory report to creditors dated 6 June 2024, the amount of $71,197.50 (plus GST) from the assets of the Second Plaintiff. 5. Order, pursuant to s 60-10 of the IPS, that the First Plaintiff is entitled to receive, for necessary work performed by him in relation to the liquidation of the Second Plaintiff from 1 July 2024, calculated on a time costs basis in accordance with the hourly rates of Balance Insolvency, as detailed in the First Plaintiff's statutory report to creditors dated 6 June 2024, the amount of $50,000.00 (plus GST) from the assets of the Second Plaintiff. 6. Order that the Plaintiffs' costs of this Originating Process be payable, on an indemnity basis, from the assets of the Second Plaintiff. 7. Declare that the First Plaintiff is entitled to pay himself the amounts referred to in orders 2-6 herein from the assets of the Second Plaintiff. The Court NOTES that the determination of the Liquidator's application does not determine any right or title to, or interest in, the assets referred to in paragraph 72 of the Liquidator's affidavit of 6 August 2024.

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: 16 September 2024