Lollback v Brakepower Pty Ltd

CATCHWORDS : CORPORATIONS - winding up by the court - liquidators - liquidator's remuneration determined by a registrar of the court - application by sole contributory for review of the registrar's decision - review sought only as to decision that there should be no order as to costs - approach to review of exercise of registrar's discretion - no basis for intervention shown - CORPORATIONS - liquidators - inquiry into liquidator's conduct - whether court should order - various complaints about liquidator's conduct - no basis to order inquiry shown

Civil Procedure Act, s 98(1)(a), (b). LEGISLATION CITED : Corporations Act 2001 (Cth), ss 468A(8), 471A(1A), 473(3), 473(6), 482, 536 Supreme Court Act 1970, s 121(3) Uniform Civil Procedure Rules 2005, rule 49.19

House v R (1936) 55 CLR 499 ; [1936] HCA 40 Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 Re SNL Group Pty Ltd [2010] NSWSC 797 CASES CITED : Sellers; in the matter of Beckley Forge Pty Ltd [2003] FCA 523 State Debt Recovery Office v L and G Contracting Service Pty Ltd [2009] NSWSC 1116 Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292 ; (2006) 57 ACSR 103

Mark Lollback - Plaintiff PARTIES : Brakepower Pty Ltd - First Defendant David Anthony Ross as liquidator of Brakepower Pty Ltd - Second Defedant

COUNSEL : Mr G D McDonald Mr A W Smith - Defendants

SOLICITORS : J T Law - Plaintiff MSB Lawyers - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2010/18159 MARK LOLLBACK v BRAKEPOWER PTY LTD & ANOR JUDGMENT Parties and claims 1 The plaintiff, Mr Lollback, seeks two orders against Mr Ross, the liquidator of Brakepower Pty Ltd, a company subject to winding up by the court under the Corporations Act 2001 (Cth) by virtue of an order made by the Supreme Court of Victoria on 2 September 2009. 2 Mr Lollback is the sole director and contributory of Brakepower. 3 Mr Lollback's first claim (advanced by interlocutory process dated 16 July 2010) is for a review of a determination of a registrar with respect to Mr Ross's remuneration as liquidator of Brakepower. Towards the end of the hearing, however, Mr McDonald of counsel indicated that that application was limited to review of the registrar's decision concerning the costs of the remuneration application determined by him (the registrar ordered that there be no order as to costs). 4 Mr Lollback's second claim (which is in paragraph 5 of an amended originating process dated 16 July 2010) is a claim for an inquiry into Mr Ross's conduct as liquidator of Brakepower. To be precise, he seeks the following order and bases his claim for it on s 536 of the Corporations Act: "An order that the Court enquire into the following matters relating to the conduct of the Second Defendant ('the Liquidator'): (a) whether the Liquidator needed to, ought to and did properly convene the meeting of creditors of the Defendant held on 12 March 2010; (b) whether the Liquidator ought to have accepted the offer set out in the letter of JT Law of 12 March 2010 and consented to the termination of the winding up on 15 March 2010; (c) whether the Liquidator's conduct was unreasonable, improper or in breach of the Act, in seeking the approval of remuneration at the meeting of creditors held on 12 March 2010 fixed in the amount of $55,000 inc GST, having regard to the above matters and the decision of Registrar Musgrave in the Liquidators Remuneration Application; (d) whether any other conduct of the Liquidator was unreasonable, improper or in breach of the Act; (e) whether the legal fees incurred by the Liquidator are reasonable and ought to be payable out of the assets of the Defendant, having regard to the above matters and any other issues the court may consider relevant." Review of the registrar's determination 5 Mr Ross filed an interlocutory process on 19 April 2010 by which he asked the court to fix his remuneration as follows: first, $39,943 for the period 2 September 2009 to 9 April 2010; and, second, an amount calculated at the rates in his schedule of hourly rates (capped at $14,000) for the period 10 April 2010 to completion of the winding up. 6 When the interlocutory process came before the registrar, the relief for which Mr Ross pressed was the fixing of his remuneration in the sum of $33,298.50 plus GST for the period 2 September 2009 to 9 April 2010; in the sum of $6,515.00 plus GST for the period 10 April 2010 to 17 May 2010; and in a sum capped at $7,000.00 from 18 May 2010 to completion of the winding up. These amended claims were embodied in an amended interlocutory process filed in court when the matter was heard. Each claim ended with the words "or such other amount as the Court deems [or sees] fit". 7 Over opposition by Mr Lollback, the registrar awarded $22,000 plus GST for the first period, the claimed amount ($6,515.00 plus GST) for the second period and a cap of $3,500 for the third period. In addition and as I have said, the registrar made no order as to the costs of the determination, to the intent that each party should bear his own costs. 8 It is the last aspect of the registrar's decision (as to the costs of the determination) that is the subject of the present application for review. 9 There was reference in submissions before me to the approach the court takes upon review of a registrar's decision. Section 121(3) of the Supreme Court Act 1970 says that a judgment given or order made by "an officer" (which includes a registrar) may be "set aside or varied by the Court". Rule 49.19 of the Uniform Civil Procedure Rules 2005 provides: "If in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit." 10 The essential nature of the review process for which provision is thus made may be gathered from the judgments of Basten JA and Hodgson JA in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61. Basten JA noted (at [52]) that a review, unlike an appeal, "does not require" demonstration of error and "is not restricted" to reconsideration of the material before the primary decision maker; authorities with respect to the conduct of appeals against the exercise of discretionary points, such as House v R (1936) 55 CLR 499 ; [1936] HCA 40 "do not in terms apply to a review", although "similar policy considerations may arise in relation to a review" to make a court "less inclined to intervene" or "more inclined to intervene"; and, although the court should, on a review, "exercise afresh" the relevant power, "it does not follow that the reasoning of the Registrar should be ignored, or that variations in the materials presented to him and the evidence adduced in this Court are irrelevant". 11 Hodgson JA observed (at [7] and [8]) that the process of review involves a discretion, including a discretion whether and, if so, how to intervene; also that the person seeking review has an onus to make out a case for intervention. His Honour added that this will "normally require at least demonstration of an error of law, or a House v R error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence". 12 Ipp JA agreed with both Hodgson and Basten JJA. 13 It is made clear by the judgments in Tomko v Palasty (No 2) that review, in the relevant sense, involves discretionary intervention. The starting point for the court is therefore the decision that is to be reviewed. The court does not merely cast that decision to one side and proceed as if it had never been made. While it is for the court to make the relevant decision afresh, it will have regard to the basis on which the decision was made and the material placed before the court itself on the application for review. 14 A problem in the present case is that there is not before the court any copy of reasons given by the registrar or of the transcript of the proceedings before him. It is said that court officials have indicated that "the tapes" have been "lost". It is therefore not possible for the court to know the basis on which the decision with respect to costs was made. 15 The fact that the challenge concerns only the registrar's decision to make no order as to costs does, however, mean that the application for review relates wholly to a matter of discretion: Civil Procedure Act, s 98(1)(a), (b). It follows, in my view, that, even upon a review, the court will be very slow to intervene and should not do so except on grounds of the kind identified in House v R (above) at 504-505: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." 16 Particularly apposite in the circumstances I have described is the part of this passage referring to a situation in which it may not appear how the primary decision-maker reached his or her decision. The question then is whether, on the facts, the decision is unreasonable or plainly unjust, in which event the court in which the decision is called into question may infer that in some way there has been a failure properly to exercise the relevant discretion. 17 In the present case, the decision that there should be no order as to the costs of the hearing before the registrar was made in circumstances where remuneration for the first period was about 55% of the amount sought in the interlocutory process (and about 66% of the amount for which the claim was pressed at the hearing), the remuneration awarded for the second period was as sought at the hearing and the cap ordered for the third period was 50% of that sought at the hearing. 18 This, Mr Lollback says, means that he was, as it were, successful in resisting the liquidator's claim and that he should therefore have been awarded his costs by way of an order that the liquidator pay those costs. This is said to be warranted on the ordinary basis that costs should follow the "event". 19 But the matter before the registrar was not a piece of ordinary litigation inter partes. The liquidator had a right to remuneration. In the circumstances, he asked the court to exercise its statutory duty to fix his remuneration. He thus resorted to a procedure provided to him by statute and made submissions to the court as to what it should allow him. The court allowed less. Submissions made on behalf of Mr Lollback were no doubt taken into account by the registrar in deciding the proper quantum of remuneration. But the fixing of an overall sum lower than that sought (and the fact that two of the three components were, as awarded, less than sought) was not something that the registrar was bound to regard as an "event" for the purposes of the principle that costs follow the event. The registrar's function was, in many ways, akin to that of a taxing master. His duty was to arrive at a reasonable figure for remuneration. In doing so, he brought his own judgment to bear. He may or may not have reached the same conclusions in the absence of submissions from Mr Lollback's counsel. 20 For these reasons, no basis is shown for discretionary intervention in the registrar's decision that there should be no order as to costs in relation to the proceedings on the liquidator's interlocutory process filed on 19 April 2010. The s 536 claim - principles 21 I turn now to the question whether the court should undertake a s 536 inquiry into the liquidator's conduct. 22 That question should be approached in the way I recently described in Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [35] to [37]: "35 Proceedings under s 536 involve three stages. At the first stage, the court, upon application made, decides whether an inquiry into the liquidator's conduct is warranted. In Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99, the Court of Appeal pointed out that there need not be a prima facie evidentiary case of lack of faithful performance or observance of requirements. But the applicant must point to something about the liquidator's conduct that is a sufficient basis for making an order for inquiry; and it is desirable that this be articulated in pleaded form: Re Fox Home Loans Pty Ltd [2005] NSWSC 1050.

36 A sufficient basis is probably best summed up as in the nature of a well-based suspicion indicating a need for further investigation, with suspicion connoting a positive feeling of actual apprehension or mistrust, as distinct from mere wondering. Once such a basis has been shown, the court has a discretion whether or not to order an inquiry and thereby to progress the matter to the second stage which involves examination of the liquidator's conduct and performance in the form of an adversarial proceeding, with particular allegations being advanced against the liquidator on the basis of evidence regularly adduced and the liquidator having full opportunity to mount a defence in the usual way.

37 The question whether a sufficient basis for ordering an inquiry into a liquidator's conduct exists must be approached by reference to the purpose such an inquiry is intended to serve. As numerous judicial statements about s 536 make clear (including those of the Court of Appeal in Hall v Poolman (above)), that purpose is related to regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to winding up. The interest to be served is a public interest. The section is not concerned in any direct way with vindication of private rights. Rather and as Steytler J said in GIS Electrical Pty Ltd v Melsom [2002] WASCA 302 ; (2002) 172 FLR 218 at [49] echoing an observation of McLelland CJ in Eq in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438, it "is concerned with aspects of the conduct of liquidators which are liable to attract sanctions or control for what might be broadly described as disciplinary reasons". The pre-occupation is, as I put it in Re Bauhaus Pyrmont Pty Ltd [2006] NSWSC 742 at [4], with 'the broader question of due administration of the winding up in the public interest." 23 It is with these principles in mind concerning the first stage of the s 536 process (the only stage now relevant) that I approach the several matters put forward by Mr Lollback as warranting a s 536 inquiry. Those matters are pleaded in points of claim. My task is to decide whether there is a well-based suspicion indicating a need for further investigation of these matters (or any of them), with "suspicion" connoting a positive feeling of actual apprehension or mistrust, as distinct from mere wondering. The matters said to warrant an inquiry 24 The first matter raised by Mr Lollback concerns conduct of the liquidator in relation to an application by Mr Lollback for an order under s 482 of the Corporations Act terminating the winding up of Brakepower. Mr Lollback says that the liquidator should have consented to the making of the order sought and not have incurred legal fees on the termination application beyond 15 March 2010. 25 The second matter raised by Mr Lollback concerns conduct of the liquidator in convening a meeting of creditors for the purpose of seeking a resolution fixing his remuneration. The complaint here is twofold: first, that the meeting should not have been convened; and, second, that it was not properly convened. 26 The third matter of complaint is the liquidator's claiming what is said to have been excessive amounts as remuneration in the context of both the meeting of creditors he took steps to convene and the interlocutory process seeking determination of his remuneration by the court. Factual background 27 After his appointment as liquidator on 2 September 2009, Mr Ross made unsuccessful attempts over a period of some six weeks to obtain from Mr Lollback the books and records of Brakepower and a report as to affairs. On 19 October 2009, Mr Ross sought the assistance of ASIC to compel compliance in these respects. A report as to affairs and some books and records were provided on 16 November 2009. 28 On 20 January 2010, Mr Lollback filed the originating process in these proceedings by which he sought an order terminating the winding up. At an earlier point (indeed, by letter dated 15 December 2009), the liquidator had informed Mr Lollback that he would not oppose termination if Mr Lollback could show that Brakepower was solvent. The liquidator, at that early stage, referred to related party debts of $828,338.76 of which $814,812 was owed to Vamona Pty Ltd. 29 The liquidator commented that proof of solvency could be difficult while related party debts of Brakepower remained outstanding. 30 Upon the termination application being filed, the liquidator formed the view that it was not supported by evidence sufficient to prove solvency. 31 On 29 January 2010 - that is, nine days after the filing of the termination application - the liquidator informed Mr Lollback by letter of his intention to convene a meeting of creditors to approve remuneration. The same letter set out matters that the liquidator saw as in need of attention in connection with the termination application (with particular attention to the need for the related party debt to be dealt with and for an independent solvency report). The letter also said that the liquidator had instructed solicitors to appear on the first return of the termination application on 1 February 2010. 32 When the termination application came before the court on that day, it was adjourned to 15 February 2010. There was a subsequent adjournment to 1 March 2010. 33 On 8 February 2010, the liquidator's solicitors wrote to Mr Lollback's solicitors noting that the 15 February court date was approaching and that the liquidator needed, among other things, a solvency report and information about the status of the related party debt. 34 After the court appearance on 15 February 2010, the liquidator's solicitors wrote to Mr Lollback's solicitors expressing concern about the time taken over a termination application that remained unviable. 35 On 22 February 2010, Mr Lollback's solicitors informed the liquidator's solicitors that Mr Godfrey had been retained to prepare a solvency report (he had, it appears, been instructed on 15 February 2010). 36 On or about 25 February 2010, the liquidator gave notice of a meeting of creditors to be held on 12 March 2010 and sent an accompanying report. The report referred to an intention of the liquidator to seek at the meeting approval of remuneration for the period from appointment (on 2 September 2009) to 21 February 2010 to a maximum of $26,959.50 (plus GST) and, separately, for the period 22 February 2010 to completion, a maximum of $23,040.50 (plus GST), with the actual amount, within each maximum, being calculated at the firm's hourly rates. 37 Despite the report foreshadowing remuneration on the basis thus stated (and proposed resolutions to that effect actually set out in the report), the notice of meeting contained an item as follows: "To approve the remuneration of the Liquidator for the period of the Liquidation for the fixed amount of $50,000.00 plus GST" 38 Mr Lollback's solicitors wrote to the liquidator's solicitors on 10 March 2010 complaining about aspects of the report to creditors and other matters. 39 On 11 March 2010, the liquidator sent to Vamona (attention Mr Lollback) a letter referring to the report to creditors dated 25 February 2010 and continuing: "Please find attached the Remuneration Report that was inadvertently omitted from the Report." 40 This letter went on to confirm that the meeting of creditors was to take place on 12 March 2010. The enclosure detailed service providers in the liquidator's office, their rank or status, their charge out rates and time spent by each on various categories of work in the period 2 September 2009 to 18 March 2010 (how a document sent on 11 March could cover a period to 18 March 2010 is not explained). 41 The meeting of creditors took place on 12 March 2010. Two proposed resolutions regarding remuneration were proposed, as outlined in the report. Neither was passed. 42 On 12 March 2010 (but after the meeting), Mr Lollback, through his solicitors, emailed to the liquidator's solicitors a letter as follows: "We refer to the meeting of creditors of the above named Company held today and to the application before the Supreme Court on Monday to terminate the winding up. The creditors, being my clients as to 99% in total value and the majority in number, did not approve the payment of any remuneration of the Liquidator. We appreciate that some resolution of this matter is desirable before the application is heard on Monday. Your client has indicated that he will Consent to the application to terminate the winding up, if his remuneration and costs are 'approved' in the amount of $23,040.50 plus GST of $2,304. In addition, there are legal fees due of about $12,000 incl. GST, which includes the applicant creditor's legal costs. In all the total cost of the liquidation would be around $38,000. You will recall that the total claims of external creditors were around $5,000. Our client is prepared to 'approve' the payment of these fees set out above and no others, if the winding up is terminated on Monday. There is no need for another creditors meeting to be held. Our client will undertake personally to meet the payment of the Liquidators remuneration and disbursements set out above. Further, our client will consent to the Liquidator maintaining a lien over the cash funds he has under his control, to meet these obligations, until the obligation is paid. This can allow for the immediate refund of significant funds to our client and effectively a round robin of cheques to pay the obligation. As your client is not being paid out of the assets of the company, there is no need for his remuneration to be approved in a formal manner. We require your immediate confirmation that your client accepts the foregoing and consents to the termination of the winding up on this basis. We do not wish to have extra costs burdened upon our client as a result of any adjournment of the application, having regard to the obvious solvency of the company." 43 A not altogether productive correspondence followed. Mr Lollback's termination application came before the court on 15 March 2010 (the "Monday" referred to in the letter just quoted) and was adjourned for a week. On 17 March 2010, Mr Lollback's solicitors wrote to the liquidator's solicitors. They asked for a reply to their letter of 12 March 2010 and said that, in the light of their client's position there stated and s 473(3)(b)(ii) of the Corporations Act, "there is no requirement for a further meeting of the creditors". The letter continued: "Accordingly, we seek your consent for the matter to proceed as detailed above and for the issue of the remuneration to the liquidator to be dealt with by the court". 44 A reply by the liquidator's solicitors dated 18 March 2010 made several points - in particular:

(a) that the liquidator intended to request a three weeks adjournment of the termination application so that he could review a solvency report received by him at 5pm on 12 March 2010;

(b) that the liquidator wished to make the solvency report available to all creditors after his review; and to receive responses from creditors;

(c) that determination of remuneration by the court "takes considerable time and effort" and is "not simply a matter of both parties' representatives agreeing to a set fee or sum"; and

(d) that with matters in their then current state, the liquidator would oppose the termination application. 45 Mr Lollback's solicitors wrote to the liquidator's solicitors on 19 March 2010 making the following main points:

(a) Mr Lollback and his company were the only creditors other than the petitioning creditor;

(b) Mr Lollback had "paid out" the petitioning creditor from his own funds (it seems that he acquird a bank cheque for this purpose with his own moneys);

(c) apart from the debts to Mr Lollback and his company, the only claims to be met were the petitioning creditor's costs and the liquidator's remuneration and outgoings;

(d) the liquidator should consent to termination of the winding up on condition that his remuneration was fixed by the court at $23,040.50 (plus GST) and he was also paid disbursements (in the form of legal costs) of $12,000.00 and these amounts were "secured for payment" by "the cash at bank under his control" accepted by him as "sufficient security for this purpose". 46 The solvency report referred to in this correspondence is a report dated 2 March 2010 prepared by Mr Godfrey, the insolvency practitioner retained by Mr Lollback on 15 February 2010. His report stated that Brakepower was insolvent on 2 September 2009 and continued to be insolvent at the date of the report; also that if the related party debt owed to Vamona Pty Ltd were converted into equity, Brakepower would not be insolvent. 47 On 26 March 2010, Mr Lollback, through his solicitors, sought the liquidator's consent to capitalisation of debts owing by Brakepower not only to Vamona Pty Ltd but also to himself (ie, Mr Lollback). The liquidator gave that consent on 1 April 2010. When the termination application came before the court on 6 April 2010, matters were noted and orders were made as follows: "The Court notes that: A. An application has been made by the Plaintiff to the Liquidator of the Defendant for permission, under section 468A(8)(a) of the Corporations Act for the Defendant, to alter the status of members of the Defendant and allot fully paid ordinary shares ('the Debt for Equity Swap') to convert into equity the whole of each of the Lollback Loan and Vamona loan referred to in the Affidavit of the Plaintiff sworn on 12 March 2010 ("the Related Party Loans") B. The Liquidator of the Defendant has consented to the Debt for Equity Swap. On the undertaking of the Plaintiff, by his Counsel, that: 1. Until further order of the Court or the termination of the winding up, whichever occurs first, the Plaintiff shall not permit the Defendant to incur any liability to any party. 2. The Plaintiff shall cause the Debt for Equity Swap to occur and be registered at the ASIC as soon as practicable,

the Court orders: 3. The Winding up of the Defendant be stayed until further order of the Court. 4. Matter adjourned to 3/5/10 before the Corporations Judge. 5. Any interlocutory application by the liquidator of the defendant for the determination of his remuneration be filed and served by 19/4/10 & returnable before the Corporations Judge on 3/5/10." 48 I digress to observe that a number of misapprehensions were at work when Mr Lollback's lawyers placed before the court the matters just mentioned. 49 First, there was an assumption, it seems, that an issue of new shares to an existing member entails a change in the status of that member (or of the members), that being the matter regulated by s 468A(8). This is not so. Finkelstein J held in Sellers; in the matter of Beckley Forge Pty Ltd [2003] FCA 523 that a prohibition in the terms now contained in s 468A(8) did not preclude the issue of new shares. As his Honour explained, an allotment does not alter the "status" of existing members:

"So far it has not been necessary for any court to define precisely what amounts to an alteration in the "status" of a shareholder. Plainly enough, the section is not concerned with persons with a disability or other peculiar legal condition, which is the usual meaning of "status". The section is designed to maintain the status quo as regards the rights and obligations of shareholders existing at the commencement of an administration. If the status quo is not maintained, then the rights that a company in administration or later liquidation may have against its shareholders could be impaired or lost. Undoubtedly, there will be an alteration in status if a preference shareholder becomes an ordinary shareholder, except perhaps in the unusual circumstances that exist in In re Blaina Colliery Co [1926] WN 30. There will also be an alteration in status if partly paid shares are converted to fully paid shares without payment of the balance of the uncalled capital (see In re Oriental Commercial Bank (1868) LR 5 Eq 420). So also if the register is rectified to remove the name of a shareholder ( In re London & Suburban Bank (1872) LR 15 Eq 274). There will be an alteration in status in each of these cases because there has been a change in the rights that subsist between the company and the shareholder (see In re National Bank of Wales (1897) 1 Ch 298). This case, however, falls beyond the reach of the section. Here, none of the rights or privileges which are vested in, nor any of the corresponding duties or obligations which are imposed upon, existing shareholders will in any way be affected by the allotment." 50 Second and in any event, Vamona Pty Ltd was not (and is not) a member of Brakepower. Mr Lollback was, at all material times, the sole member. 51 Third, there is an erroneous assumption that an issue or allotment of shares is somehow "registered at the ASIC". 52 It seems clear, however, that the liquidator consented in writing to corporate action of Brakepower, through its sole director, by which shares were issued to each of Vamona and Mr Lollback in consideration of release by them of the debts owed to them by Brakepower. It may be inferred, therefore - and the liquidator does not argue to the contrary - that there was approval of the director's action by the liquidator under s 471A(1A). The liquidator accepts that shares were allotted and (indebtedness extinguished) and that this happened on 17 May 2010 in consequence of approval granted by the liquidator on 1 April 2010. 53 Returning to the events of 6 April 2010, however, it is clear that, although Mr Lollback's claim was a claim for an order terminating the winding up, the winding up was, on that day merely stayed until further order so that the company remains subject to winding up. Thereafter, both the liquidator's application for determination of his remuneration and Mr Lollback's claim for an order directing a s 536 inquiry were progessed. 54 Against this factual background, I return to the complaints relevant to Mr Lollback's claim for a s 536 inquiry. The liquidator's conduct in relation to the s 482 application 55 Mr Lollback contends that the liquidator should have consented to the termination of the winding up when the matter was before the court on 15 March 2010 and should not have done further work (attracting remuneration and entailing legal fees) beyond that date. 56 This contention not only misunderstands the role of a liquidator in such circumstances but is patently unsupported by the facts. 57 The position on the morning of 15 March 2010 was that the liquidator had received Mr Godfrey's solvency report at the close of business on the immediately preceding business day. He needed time to review it. As it happened, the report expressed the opinion that the company was insolvent and had been in that state since the commencement of the winding up. The report also expressed an opinion that the company would not be insolvent if the related party indebtedness to Vamona were capitalised and converted into share capital. 58 How can it possibly be said that the liquidator somehow acted wrongly because he did not indicate consent to the termination of the winding up of a company still in a state of insolvency? Perhaps the proposition is that he should have consented on the strength of an undertaking to the court by Mr Lollback to attend to capitalisation of the Vamona debt. But that is, for several reasons, a problematic proposition. 59 The capitalisation proposal arguably entailed disadvantage for Vamona. That company was asked to exchange the position of creditor of an insolvent company for the position of shareholder in a company rendered solvent solely by the elimination of the debt it owed to Vamona. What advantage did that transaction offer to Vamona, from the point of view of its own separate interests? And what of the position of Mr Lollback as, it appears, the sole director of Vamona as well as of Brakepower: how would he, as a fiduciary of each, arguably compromise the interests of Vamona for the advantage of Brakepower; and what of the interests of any separate constituency of creditors within Vamona? 60 Unless and until he actually saw the capitalisation achieved and completed, the liquidator was entitled to have reservations as to whether it would occur. 61 Nor could the liquidator proceed on any well-founded assumption that the court would see an undertaking regarding capitalisation as a sound basis on which to terminate the winding up of an insolvent company: see, for example, Re SNL Group Pty Ltd [2010] NSWSC 797. 62 In short, the liquidator was not presented with the clear-cut position that could have been achieved had Mr Lollback, before requesting the liquidator to support the termination, moved methodically to seek the liquidator's approval under s 471A(1A) to exercise of his powers as director to issue shares in satisfaction of a such suitable application as might be made by Vamona and, armed with that approval, to attend to the capitalisation of the Vamona debt and then produce appropriate evidence to Mr Godfrey so that he could express a positive and unconditional opinion on the question of solvency. Had Mr Lollback proceeded in that way, the liquidator's attitude to the termination application may have been different. 63 Mr Lollback and those advising him seem to think that, if a liquidator consents to a contributory's application for an order terminating a court-ordered winding up, the court will simply make the order without inquiry. This is simply not so. The power under s 482 to terminate or stay a winding up is discretionary. Speaking of termination, Austin J summarised the relevant principle as follows in Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292 ; (2006) 57 ACSR 103 at [17]: "(i) the court has a discretion as to whether the winding up should be terminated; (ii) in exercising its discretion, the court considers the interests of: creditors of the company (including future creditors); the liquidator, particularly with respect to costs; the contributories; the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up." 64 The attitude of the liquidator is an important consideration upon a termination application. If the liquidator is opposed, the court will scrutinise the matter very closely. If the liquidator consents, the court will have the knowledge that the person most familiar with the up-to-date position perceives no obstacle to the re-launching of the company into the mainstream of commercial life. If the liquidator neither consents nor opposes, the court will know that the liquidator does not consider himself or herself justified in offering the court an opinion one way or the other as to the ultimate outcome. 65 In the present case, the state of affairs existing on 15 March 2010 cannot be said to have been such that the liquidator was duty bound to consent to the termination - or even that that would have been the preferable course for him to adopt. 66 The liquidator's conduct in not consenting to termination of the winding up when the termination came before the court on 15 March 2010 does not raise any apprehension of misconduct warranting inquiry under s 536. The liquidator's conduct in relation to the meeting of creditors 67 The complaint here, as I have said, is twofold: that the meeting should not have been convened; and that it was not properly convened. 68 The proposition that the meeting should not have been convened is bound up with the contention that the liquidator should have consented to the termination of the winding up. Reference was made by counsel for Mr Lollback to State Debt Recovery Office v L and G Contracting Service Pty Ltd [2009] NSWSC 1116. 69 It may be that, in some circumstances, the court will, as there, deal with a liquidator's remuneration in a relatively summary way in the context of a termination application. But that does not change the fact that, on the face of s 473(3), the expectation is that, where there is no committee of inspection, the fixing of remuneration is normally or principally a task for a meeting of creditors. In the ordinary course of events, the appropriate course will be for the liquidator to seek a resolution of creditors before resorting to the court. 70 The liquidator's intention to convene a meeting of creditors for this purpose was notified to Mr Lollback on 29 January 2010. Some nine days beforehand, Mr Lollback had filed his termination application. The liquidator had formed the view that it was not supported by evidence sufficient to prove solvency. The liquidator remained of that view until he became aware that, on 17 May 2010, the Vamona debt had been capitalised and converted into equity with the aid of an approval given by the liquidator on 1 April 2010. 71 When the liquidator gave notice of the meeting of creditors on or about 25 February 2010, the termination application had been before the court on two occasions but had not been progressed in any substantive way. When the meeting of creditors was held on 12 March 2010, the position was precisely the same. At neither point was there any sound basis for an expectation that an opportunity would (or might) present itself to seek to have the question of remuneration dealt with in the summary way outlined at paragraph [69] above. 72 From at least 10 March 2010, it was clear that Mr Lollback was opposed to the remuneration proposal put forward by the liquidator for consideration at the meeting. That position was confirmed when the meeting declined to pass resolutions as sought by the liquidator. An important point arises at this juncture. Not only did the meeting decline to pass the resolutions sought by the liquidator. It also failed to make any other determination of remuneration. It was open to the meeting to determine remuneration less than that sought. To resolve that, say, 50% or 75% of the claimed amount be determined as the liquidator's remuneration for each period is something that was within the power of the meeting. Section 473(3)(b)(i) differs in an important matter of substance from s 473(3)(a). The concept in s 473(3)(a) is one of agreement: there will be no determination of remuneration unless there is "agreement between the liquidator and the committee of inspection" and, in the event of agreement, it is the agreement that fixes the remuneration. Under s 473(3)(b)(i), by contrast, the process is one of unilateral determination by resolution of creditors. The creditors, by resolution, dictate the remuneration and there is nothing confining them to whatever request the liquidator may have made - indeed, they do not need to have any such request before them. If the determination that creditors actually make does not find favour with the liquidator (in the sense that the liquidator is of the opinion that there is, as an objective matter, a valid case to be made in support of a greater quantum), he or she may apply under s 473(6) for a review of the remuneration by the court. 73 When, as happened on 12 March 2010, the meeting of creditors is invited to pass particular resolutions fixing the liquidator's remuneration and passes neither those nor any other resolutions, the liquidator is at liberty to think that there is no point in persisting with the principal method of determination envisaged by the legislation for cases where there is no committee of inspection. On that footing, there was no reason why the liquidator should not have resorted to the s 473(3)(b)(ii) method, as he did by his interlocutory process filed on 19 April 2010 (at which time, it may be noted, the capitalisation of the Vamona debt approved by the liquidator some eighteen days earlier as part of Mr Lollback's plan to restore Brakepower to solvency had not occurred - it was to be a further four weeks before that happened). 74 Mr Lollback's solicitors said in their letter of 10 March 2010 to the liquidator's solicitors, after stating that the meeting had "not been properly convened" and was "totally unnecessary", that Mr Lollback intended "to informally approve" total remuneration of $10,000 and "would accept disbursements up to a limit of $5,000". Why Mr Lollback and his related creditors did not then act at the meeting to determine remuneration in the sum of $10,000.00, thus transferring to the liquidator the onus to seek review of that remuneration, is something that the evidence does not disclose. 75 I am of the opinion that the action of the liquidator in convening a meeting of creditors for the purpose of seeking a determination of his remuneration in the way envisaged by s 473(3)(b)(i) is not something that calls his conduct into question in any way warranting inquiry under s 536. 76 There is then Mr Lollback's allegation that the meeting was not properly convened. Submissions by his counsel refer to the letter of 10 March 2010 from Mr Lollback's solicitors as having made this allegation known to the liquidator. It is true that that letter did advance such an allegation. It did so in the fifth last paragraph. But neither in that paragraph nor elsewhere did the letter state the basis of the allegation - beyond the point that the termination application was pending and was to be before the court on 15 March 2010 in circumstances where Mr Lollback and his related interests were the only creditors. 77 Counsel's submissions go on to say, however, that the liquidator subsequently admitted "that he did not comply with his obligations in convening the meeting of creditors for the purpose of approving his remuneration". The admission is said to have been made through the letter of 11 March 2010 (see paragraph [39] above). 78 I do not accept that there was, in any relevant sense, an admission that the meeting had been not properly convened. The evidence is that the liquidator sent on 11 March 2010 a remuneration report that had been inadvertently omitted when the notice of meeting and supporting documents were sent earlier. The proposition that the omission was inadvertent is not questioned. By the time of the meeting, the additional information - not difficult to understand and absorb - was in the hands of creditors. Mr Lollback's complaint in the letter of 10 March 2010 in no way suggested that the information supplied in connection with the proposed resolutions regarding remuneration was inadequate. Nor, according to the minutes, was there any complaint at the meeting itself about the lateness of the additional report transmitted on 11 March 2010. 79 The significant point about these matters is that the meeting, at which the minutes show Mr Lollback to have been present, made no decision on the matter of remuneration. There can thus be no suggestion that a decision adverse to the interests of creditors was made on the basis of inadequate or incomplete information supplied by the liquidator in connection with the meeting. 80 The liquidator should have sent the remuneration report with the notice of meeting and the documents accompanying it. By inadvertence, he failed to do so. In the circumstances, his failure was not the source of prejudice to anyone and does not represent a ground on which the court should order a s 536 inquiry into the conduct of the liquidator. The liquidator's conduct in relation to remuneration claims 81 The contention of Mr Lollback under this heading is that the remuneration claims advanced by the liquidator in the context of the 12 March 2010 meeting of creditors and afterwards were excessive and that the liquidator's conduct in that respect should be examined by the court. 82 The contention was explained by counsel for Mr Lollback in his opening: "[W]hat we say is and partly with the benefit of Registrar Musgrave's decision but partly with this analysis we are going through, we say that the amount sought by the liquidator at that time was grossly excessive, 35, 40 percent in excess of what ought to have been requested.

HIS HONOUR: So that can be misconduct to ask for but not get an excessive amount. Is that right?

McDONALD: Duties under the IPAA guidelines, full and frank disclosure.

HIS HONOUR: That is a different issue. I thought you told me asking for and being knocked back for what is an excessive amount was some form of misconduct.

McDONALD: Sorry. Whether or not it was knocked back sorry I don't think is the issue. Asking for what is ultimately determined to be an excessive amount.

HIS HONOUR: That must mean that [there] is misconduct every time there is a successful review. In the ordinary course, not this company but somewhere else, the meeting of creditors fixes remuneration. Somebody says that is too much, goes to the court and convinces the court to review it and it is put down, then ipso facto that is misconduct, is it?

McDONALD: If the amount is material and we say a rejection, for example by the registrar, potentially by this court and on the face of the documents I will take your Honour to, the amount that was sought was grossly excessive, improper.

HIS HONOUR: What about the case where the liquidator goes to court and says "I applied [sic; scil: apply] for X"; and the court says "I will give you 75 of X". Is that misconduct?

McDONALD: It is a case of the representation that is made to court.

HIS HONOUR: No, no. Just the facts. The simple fact.

McDONALD: The statistic, 25 percent would be bordering on misconduct. If it was 15 percent, no. In this case it is 30 percent the registrar has disallowed.

HIS HONOUR: So another example. There can be misconduct by making an application to the court in a given amount where the court allows a much lower amount.

McDONALD: Depending upon the circumstances for the rejection, yes …" 83 Counsel then went on to say that the proper course for the liquidator to have adopted on 12 March 2010 was to accept "the fees we offered to pay on that day", in which event "this whole liquidation would have taken a completely different course and that the probability is that the liquidation would have been terminated, at least stayed and terminated back in March". This, of course, is a quite different point and one with which I have already dealt. 84 Mr Lollback does not suggest that the liquidator engaged in misleading or deceptive conduct in formulating and placing before creditors for consideration the proposal with respect to remuneration that the meeting of creditors eventually did not approve. Nor is any such suggestion made in relation to the liquidator's subsequent application to the court for the fixing of remuneration. No dishonesty is alleged. The complaint of misconduct stems wholly from the fact that the remuneration ultimately allowed was less - Mr Lollback would no doubt say substantially less - than that sought. 85 For reasons that probably appear sufficiently from the exchange with counsel set out at paragraph [82] above, I do not accept that the mere fact of discrepancy - or even substantial discrepancy - is indicative of possible misconduct warranting inquiry under s 536. The remuneration fixing mechanisms created by the legislation depend on the provision of information by the liquidator. If he or she provides false or misleading information, there is an impermissible distortion of the statutory process and the question of misconduct will be real. But if the information is factual and not misleading, it does no more than serve the purpose of placing the liquidator's position before the decision maker, whether it be a meeting of creditors or the court. And it is then for that decision maker to make its assessment with the aid of that information and whatever else may be properly and regularly before it for the purpose. 86 The short answer to this part of Mr Lollback's case is that the liquidator's remuneration was ultimately fixed by the court after creditors had declined to make any decision on the matter. It is true that the remuneration ultimately determined by the court was in a sum appreciably lower than that sought by the liquidator when he put material before creditors and unsuccessfully sought a determination of his remuneration by creditors. But those circumstances, of themselves, represent no more than an unexceptionable working out of the statutory scheme. Conclusions with respect to s 536 87 Mr Lollback has failed to show any ground for well-based suspicion indicating a need for further investigation concerning the particular aspects of Mr Ross's conduct canvassed in the proceedings. In September 2009, Mr Ross became the liquidator of a company that was obviously insolvent. Its sole contributory filed on 20 January 2010 a termination application that, for the next four months (until 17 May 2010), remained without prospects of success. There could be no success while the company remained insolvent. Mr Ross put Mr Lollback on notice of this on 15 December 2009 - one month before Mr Lollback filed his termination application and six months before he succeeded in restoring solvency. 88 Had capitalisation of related party debt been achieved in, say, December 2009, it is likely that termination would have occurred fairly promptly and that a prolonged administration would have been avoided. As it was, the administration was not brought to an early conclusion. It was therefore entirely proper for Mr Ross to resort to the avenues of remuneration determination provided for by the legislation. He was, in the circumstances, in no way required to fall in with Mr Lollback's desires on the matter of quantum or to bide his time in the hope that Mr Lollback would, sooner or later, assemble a viable case for termination in the context of which the matter of remuneration might possibly be dealt with by the court in a summary way. 89 Mr Lollback's s 536 claim set out at paragraph [4] above refers in paragraph (e) to a matter concerning legal fees incurred. This was not pressed. 90 The s 536 claim also seeks, in paragraph (d), an inquiry "whether any other conduct of the Liquidator was unreasonable, improper or in breach of the Act". This is not a claim envisaged by s 536. The court's power is a power to "inquire into the matter"; and "the matter" is, in turn, either something specific apparently involving default in faithful performance of the liquidator's duties or in due observance a requirement (s 536(1)(a)) or a complaint with respect to the liquidator's conduct (s 536(1)(b)). Under neither heading is the court free to range at will over the whole of the liquidator's conduct. It may only "inquire into" the particular failure or default which, under s 536(1)(a), activates the power to inquire or the subject matter of the complaint which, under s 536(1)(b), activates the power to inquire. Disposition 91 The plaintiff's interlocutory process dated 16 July 2010 is dismissed with costs. 92 The application in paragraph 5 of the plaintiff's amended originating process dated 16 July 2010 is dismissed with costs. **********

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