Solicitors:
A & S Mobile Lawyers (plaintiff)
Nelson McKinnon Lawyers (defendants)
File Number(s): 2017/143110
[2]
Judgment (EX TEMPORE)
When the company now known as ACN 159 605 188 Pty Ltd, but then under its name Securimax Pty Ltd, appointed the defendants to be its voluntary administrators pursuant to (CTH) Corporations Act 2001, s 436A, on 10 October 2016, it had a security business, motor vehicles, some stock and sundry debtors of roughly $90,000. When the creditors resolved, some seven weeks later on 28 November 2016, that the company be wound up, the administrators had sold the business for (in effect) $210,000, and a motor vehicle for $7,000; at least some of the debtors had been collected, and proceeds of further sales during the trade-on, coupled with the debts collected and less the costs of the trade-on, had generated a further net $34,000. Thus, the motor vehicle, the business and the net collections from debtors and sales after costs of trade-on together produced a fund of roughly $251,000. From that, the administrators paid their remuneration approved by the creditors of $165,000 inclusive of GST; and paid the lawyers who had acted for them, at least chiefly on the sale of the business, $25,000 - a total of $190,000 - and, transferred the remaining $61,000 to the liquidation account. In proportionate terms, the lawyers received 10% of the assets, 24% was left for the liquidation account, and the administrators received 66%.
In the liquidation, having received $61,000 from the administration, the liquidators collected a further net $29,000, producing a fund of $90,000. From that, they have expended $11,000 on expenses and paid their approved remuneration of $33,000 inclusive of GST, leaving a fund of about $46,000. In their presentation of accounts as at 26 June 2017, they forecast that there would be no dividend to creditors.
By his originating process filed on 12 May 2017 the plaintiff Graham Allan Potter, who was the sole director and shareholder of the company, applies pursuant to Corporations Act, s 449E(2) and s 504(1), for a review of the remuneration, respectively, of the administrators and the liquidators.
On such a review the ultimate test is whether the remuneration is in all the circumstances reasonable. [1] However, there is a threshold question as to whether the Court should embark on a review, and in that respect the test is whether there is some demonstrated need to inquire into the originally determined quantum. [2] The criterion identified in the relevant sections - namely, "whether the remuneration is reasonable, taking into account any or all of" the enumerated matters - is relevant to the threshold decision whether or not to review, as well as in exercising the power to review, although on the threshold question there will generally be no occasion to come to firm conclusions, and the approach will be more impressionistic. The onus upon a person seeking to persuade the Court to undertake a review is not a particularly heavy one, and it suffices if there is a well-based suspicion indicating a need for further investigation. [3]
At present I am concerned with what I have called the threshold question - that is, whether or not to review - as distinct from the actual conduct of the review. As I have just indicated, the onus on the applicant in those circumstances is not a particularly heavy one.
The administrators and liquidators point with force to two major considerations tending against ordering a review. The first is that the creditors are the prime repository of the power to approve remuneration, and the creditors did so both in respect of the administration and in respect of the liquidation, after having been appropriately informed of the matters of which they ought to have been informed. The second consideration to which the administrators and liquidators particularly point is that in their evidence they have produced detailed ledgers of their work in progress, specifying item by item each task performed, the time expended and the amount charged for it, and that on that basis the amounts for which they have received approvals is justified.
Moreover, the many complaints raised in the affidavit evidence of the applicant about various aspects of the conduct of the administration do not particularly impress me, on a remuneration application, as pointing to a need for review. That is because a remuneration application is not a vehicle for general complaints about the performance of the administrator or liquidator. However, those matters aside, the issue which the applicant chiefly raises is that of the proportionality of the remuneration to the subject matter of the administration and the results it produced.
So far as the liquidation after 28 November 2016 is concerned, it seems to me that the creditors approved a lump sum of $30,000 for the liquidator's remuneration prospectively, taking some chance that it might exceed the time-costed value of the liquidation, and some chance that the liquidator might later apply for further approvals. The $30,000 figure was a negotiated figure, the liquidators having initially proposed $50,000. Prima facie, $30,000 does not seem an unreasonable amount for a liquidation of this kind, even if the receipts at this stage appear to have been only $90,000. Given the negotiation that took place, and the absence of clear disproportionality of the sum of $30,000 to the work involved, it seems to me that no case has been made for a review of the $30,000 remuneration for the liquidation. Ultimately, the liquidators may seek to claim more, and if they do, their entitlement to any more can be considered as and when it arises.
As to the administration, however, the matters of particular concern will be evident enough from the opening paragraph of this judgment. This was a company which effectively had $250,000, which might have been available for distribution among its creditors. As a result of the administration process, perhaps $60,000 of that survived to go into the liquidation where, as things stand, it will be further diminished. There has been a very substantial transfer of value from the company to the administrators, and none through the administration process to the creditors. If the administrators' work performed on a time-costed basis, were the only relevant consideration - and it is plainly a relevant consideration - then there would be no case for a review. But while it is clear that it is a proper and relevant consideration, it is equally clear that it is not the only relevant consideration.
Questions of proportionality are also a relevant consideration. If the creditors had voted for the remuneration as it ultimately accumulated at a time when they had been clearly apprised that the result would in all likelihood be that they would receive nothing while the administrators would receive $150,000 plus GST, then that might have weighed strongly against ordering a review. But although, as Mr Golledge legitimately points out, by the adjourned second creditors meeting the creditors were aware of the prospective outcome - or at least had been informed of the prospective outcome at the time that they voted for the remuneration resolutions - at the original second meeting they were not (except for those who were physically present in person or by telephone at the meeting when the sale price was disclosed). That diminishes the weight which the creditors resolution would otherwise carry.
The apparent disproportionality is striking: the remuneration claim is 66 per cent of value on the approach I have indicated above. But even if one looks at the total gross receipts of $298,000, it is still in excess of 50 per cent, which is, I think, in percentage terms as large a proportion as I have ever seen on one of these applications.
There is also an argument (on which it is unnecessary to pass at this provisional stage) that in a small liquidation it may be a luxury to have two appointees, at least to the extent that the second appointee was involved and remunerated in this case. Another striking feature is the administrators' original estimate at the first creditors meeting that their remuneration would be $30,000, when only six weeks later it turned out to be five times that. I fully appreciate that there is an explanation for this, which Mr Ward has provided in his affidavit evidence, and it may be that on the conduct of a review all of those matters will sustain the remuneration claim. But as it seems to me, the accumulation of the questions of proportionality, the dual appointment, and the original estimate of $30,000, provides a well-based suspicion within the test to which I have referred, indicating a need for further investigation.
The Court orders that:
1. Pursuant to Corporations Act, s 449E(2), there be a review of the remuneration of the defendants for acting as administrators of the company now known as ACN 159 605 188 Pty Ltd for the period between 10 October 2016 and 28 November 2016 as determined by the resolutions of the creditors meeting on 14 November 2016.
2. The application pursuant to Corporations Act, s 504(1), for a review of the remuneration of the defendants for acting as liquidators of the company for the period commencing on 28 November 2016 as approved by the resolution of creditors at the meeting on 28 November 2016 be dismissed.
3. The defendants serve any further evidence in connection with the review by 8 September 2017.
4. The plaintiff serve any further evidence by 6 October 2017.
5. Adjourn the proceedings to Monday, 16 October 2017 at 10am in the Corporations Judge Directions List for further directions.
[3]
Endnotes
See Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at 45-46 [76]-[78].
See Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at [79]; Re Cardinal Project Services Pty Ltd [2017] NSWSC 920 at [15].
See Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [77]-[78]; Re Cardinal Project Services Pty Ltd [2017] NSWSC 920 at [27].
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Decision last updated: 29 November 2017