- Lowden v Elliott Harvey Securities Ltd

Request for information as to remuneration

By its opening outline of submissions, the Commonwealth indicates that it is also concerned as to whether the total quantum of the Liquidators' remuneration is reasonable within the meaning of former s 504(2) of the Corporations Act. The Commonwealth points out, importantly, that payment of its claims which have priority under s 556(1)(e) of the Act (in respect of wages) and under s 556(1)(g) of the Act will exhaust the estimated available surplus of funds for creditors, even on an optimistic basis (Ex P1, 601). In those circumstances, the Commonwealth points out, and I accept, that the only creditors that have an ongoing financial interest in the liquidation are priority creditors, namely the Commonwealth, comprising the Department, the Australian Taxation Office and several employee creditors.
By paragraph 31(b) of the letter dated 24 August 2018 from the Commonwealth's solicitors, it requested, pursuant to s 70-45 or s 70-55 of the IPSC, that the Liquidators provide information and documents specified as: "A breakdown of the calculation of each remuneration payment made to the Liquidators identifying: (i) each person for whose work a charge has been made; (ii) the number of hours that person worked; (iii) the hourly charge-out rate for that person; and (iv) a description of the work done by that person." The same formulation is used in paragraph 1(c) of the Originating Process, although introduced by the words "information comprising". A further category identified in the 24 August letter, in argumentative form, relating to other information "that demonstrates why the remuneration charged is reasonable within the meaning of section 504(2) of the Act" is rightly not now pressed.
The Commonwealth emphasises that the Liquidators have not provided access to the time entries retained in their system which record the entry of time and narrations for work undertaken by them and their staff in the winding up of the Companies, to which reference is made in Mr Solomons' second affidavit (Solomons 22.11.18 [7]-[8]) or to the report of hours spent and tasks performed by the Liquidators to which reference was also made in that affidavit (Solomons 22.11.18 [11]). The Commonwealth points out that the Liquidators have offered several reasons, in correspondence, for not producing the time records, which include contentions that the information provided to the COI was sufficient to determine the reasonableness of their remuneration; that they have offered to provide information in a summary form; and that the time records are likely to contain confidential and privileged information or are unlikely to be fully understood by the Commonwealth. The Commonwealth submits, and I accept, that subject to any proper claim for confidentiality or privilege, none of those reasons constitute a proper basis to refuse to produce the relevant time records under s 70-45 of the IPSC, still less s 70-55 of the IPSC. Those sections create a right of creditors to access such information, subject to the exceptions where a request is unreasonable in respect of s 70-45 of the IPSC, and it is not an answer to such a request for a liquidator to express the opinion that the information has been provided elsewhere (for example, to a committee of inspection), still less that the liquidator thinks the information will be of no utility to a creditor which takes a different view. In any event, as the Commonwealth points out, there is every prospect that information as to the work actually carried out by the Liquidators will provide additional information beyond that provided to the COI, which was generally directed to approval of remuneration before the relevant work was carried out.
The Commonwealth also submits that the Liquidators have not shown any basis under IPSC s 70-45, still less s 70-55, for refusing to produce the relevant time records or the report in response to that request. It submits that that refusal is in contravention of ss 70-45 of the IPSC and 70-55 and the Court should order the production of the documents under s 70-90 or s 90-15 of the IPSC. The Commonwealth submits that the time records should be produced in electronic form to allow the Commonwealth to search and order the material. That is likely to be a sensible approach, given the volume of time entries that would be involved, at least in production of the original time records.
Mr Ng responded that paragraph 1(c) of the Originating Process referred to "information" and not information and documents. Mr Kerr pointed out that the Commonwealth's original request was wider, and I do not understand the Originating Process to have sought to make any change of substance in that respect. If it were necessary to do so, I would grant leave to the Commonwealth to amend the Originating Process so that it conformed to its original request for information and documents. Mr Ng also submits that the Liquidators' time costing records "arguably" do not fall within paragraph 1(c) of the Originating Process, because they are not a "breakdown" of the calculation of each remuneration payment made to the Liquidators and are merely "raw data". That seems to me to be, with respect, an unduly technical reading of the Commonwealth's initial request in paragraph 31 of the 24 August letter and of paragraph 1(c) of the Originating Process, particularly when advanced by a liquidator in response to its obligations under the IPSC to provide information at the request of creditors. In any event, it seems to me that time records would plainly provide a "breakdown" of each remuneration payment, since the total paid by any such payment will be split by them into amounts referable to particular attendances.
The Liquidators point to remuneration reports provided to the COI and exhibited to Mr Solomons' affidavit (Ex D1, 112-205). The question in this application is not, however, whether the Court is satisfied as to the adequacy of the information contained in those reports or whether the Commonwealth ought to be satisfied as to the adequacy of information contained in those reports. The Commonwealth has invoked a statutory right to access to information, and it is no answer to the exercise of that right that it ought to be satisfied, in the Liquidators' view or even in the Court's view, with the information that had previously been provided to the COI. Mr Solomons' affidavit also exhibits minutes of meetings of the COI at which resolutions were passed approving, largely in advance, the Liquidators' remuneration (Ex D-1, 206-252).
Mr Ng goes so far as to submit that paragraph 1(c) of the Originating Process is "vexatious". A finding that a request for information was vexatious would establish an exception to the requirement to provide information and documents under s 70-45 of the IPSC, although not, in terms, to the requirement to provide information and documents under 70-55 of the IPSC. Mr Kerr accepts that it would not be reasonable for a liquidator to comply with a request if it was vexatious (or, more precisely, a liquidator held the opinion in good faith that the request was vexatious) and that a request would fall in that category if it was made for an improper purpose, in the sense of a purpose that was unrelated to the creditor's claims in, or the conduct of, the external administration or was made for the purpose of harassing or annoying the external administrator or causing delay or detriment to the external administration. That approach is broadly consistent with the use of that concept in, for example, s 6 of the Vexatious Proceedings Act 2008 (NSW).
The Liquidators' submission that the request for information and documents relating to their remuneration is vexatious is founded, first, on the proposition that former s 504 of the Corporations Act continues to apply in this liquidation, where the Liquidators were appointed before 1 September 2017, and allows a creditor of the Companies to apply to the Court for review of the Liquidators' remuneration. Mr Ng points out that, before embarking upon such a review, the Court must be satisfied that there is some demonstrated need to inquire into the quantum of the Liquidators' remuneration, as previously determined: Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at [79]. Mr Ng submits that the scheme of the legislation is that, where a committee of inspection makes an assessment of the reasonableness of a liquidator's claimed remuneration on the basis of remuneration reports, then any further information would only be required to be produced to the Court if an applicant for review could demonstrate a well-based suspicion indicating need for further investigation. I do not accept that submission, which seems to be to be inconsistent with the fact that the legislature has conferred additional rights of access to information upon creditors generally, and the Commonwealth specifically, in s 70-45 and s 70-55 of the IPSC. There is no more reason to read down those provisions, because they can be used to obtain access to information which may later be used to support an application to the Court under former s 504 of the Corporations Act or indeed any other applicable section of the Act, than there is to read down s 486 of the Corporations Act by reference to the principles applicable to discovery: Lowden v Elliott Harvey Securities Ltd (No 2) [2016] FCA 740 at [10]; Re MHM Australasia Pty Ltd (in liq) [2018] NSWSC 739 at [14].
Mr Ng submits that this construction of those provisions: "would involve deployment of those provisions for an improper purpose, namely, to re-open an inquiry into the reasonableness of the liquidator's remuneration while circumventing the need to establish a demonstrated need to undertake such an inquiry." With respect, I see no element of "impropriety", or indeed of circumvention, in a creditor relying on its rights of access to information from an external administrator under s 70-45 or s 70-55 of the IPSC, prior to invoking other provisions in the Corporations Act or the IPSC which allow review of remuneration or other review of an external administrator's conduct. Mr Ng also submits that the use of these provisions is inappropriate, because it amounts to an alternative to preliminary discovery in respect of an action under former s 504 of the Act. Again, where the legislature has conferred a right of access to information upon creditors, I can see nothing inappropriate in creditors exercising that right of access, rather than taking the more costly step of seeking an order for pre-action discovery from the Court. That result does not seem to me to be inconsistent with, but to promote, the policies reflected both in the provisions for creditors' access to information in the IPSC and in former s 504 of the Act.
Mr Ng submits that if (as I have held) the provisions on which the Commonwealth relies are not limited in the manner that the Liquidators contend, the Court should nonetheless refuse the relief sought as a matter of discretion, because of the participation of the Commonwealth, through the Deputy Commissioner of Taxation, in the deliberations of the COI. Mr Ng point out that the Commonwealth, represented by the Deputy Commissioner of Taxation, was owed tax debts by the Companies and a representative of the Deputy Commissioner of Taxation was appointed to the COI and approved the Liquidators' remuneration. I am not persuaded that that matter provides any answer to a request by the Commonwealth for production of the relevant information, whether made by the Department, or indeed even if it were now made by the Deputy Commissioner of Taxation, to investigate whether the remuneration that had previously been approved in advance by the COI had in fact been reasonably paid.
Mr Ng also submits that the request for information as to remuneration is vexatious given the "multitude of requests for documents and information made of the Liquidators by the Commonwealth". I have referred above to the several requests for information made by the Commonwealth, and to the volume of material produced by the Liquidators. It does not seem to me to follow that, because the Commonwealth has previously requested information as to a range of matters, which the Liquidators have provided or largely provided, a request for information directed to whether the Liquidators' remuneration was reasonable is vexatious. There is no suggestion that the Liquidators have previously provided information to the Commonwealth of the kind that is now sought which is, as I have noted above, more detailed to that contained in remuneration reports provided to the COI and exhibited to Mr Solomons' affidavits in these proceedings. There is also no suggestion that there would be any particular difficulty in the Liquidators accessing that information, where they will have maintained it in accordance with the professional obligations. Mr Ng also criticises the Commonwealth's failure to accept an invitation by the Liquidators to meet to discuss the purpose and focus of the Commonwealth's requests. It does not seem to me that that criticism is well-founded, where the Commonwealth could reasonably form a view that a request for the underlying time records supporting payment of a very large amount of remuneration would not be met by anything other than provision of that information.
Mr Ng also submits that, in this matter: "The Commonwealth purported to use the information disclosure provisions in the [IPSC], if not as an instrument of harassment and oppression, then certainly as a means to undertake close surveillance of every step that the Liquidators have taken over a protracted winding up." It is also not apparent to me that it would be unreasonable for the Commonwealth to wish to undertake a review, and potentially a close review, of steps that the Liquidators had taken in a matter in which the Commonwealth had advanced over $9.4 million to employees of the Companies, the Liquidators had been paid remuneration exceeding $4.4 million, and the return to the Commonwealth as a higher ranking creditor was to date $555,575.87. Those matters do not, on any view, seem to me to support the exercise of a discretion not to make the orders sought in paragraph 1(c) of the Originating Process. If additional costs will be incurred in complying with them, then they are likely to be borne by the Commonwealth in any event, so far as it has the substantial remaining economic interest in the liquidation.
Mr Ng alternatively submits that the Court should not accede to the orders sought by the Commonwealth in paragraph 1(c) of the Originating Process in its current form, and instead should "allow" the provision of the report proposed by Mr Solomons in his affidavit. I am also not persuaded by that submission. If the provision of that report complies with the Commonwealth's request and the order sought, then that will discharge the Liquidators' obligations in that respect . If it does not, then I am not persuaded that it should be provided in substitution for time records that are readily available and would comply with that request. It seems to me that it would be unfortunate, and would likely defeat the purposes of those provisions, if the Courts too readily acceded to submissions that the Courts should not order such compliance but instead accede to a liquidator's preference that some other information or document should be provided. I do not exclude the possibility that there may be rare cases where that should occur, where the costs of providing documents or information in a particular form were substantial, and the substance of that information could be provided in a less costly or more efficient way. This does not seem to me to be such a case, where time records are in the Liquidators' possession and could readily be produced, after masking for any proper claims for third party confidentiality or legal professional privilege.
I am satisfied that, where the Liquidators have not produced the information sought in paragraph 31(b) of the letter dated 24 August 2018 or paragraph 1(c) of the Originating Process to date, they should now be ordered to produce that information. It is not necessary or appropriate that I now determine which of the documents which they might produce in response to that order would comply with it. It is their obligation to comply with that order, when it is made, and they may take appropriate advice from their legal advisers and appropriate steps to comply with that order. Whether the report which they have proposed would comply with that order will depend upon its content. The Commonwealth has accepted that production of time records, masking information that is properly confidential or properly subject to legal professional privilege, would comply with that order.

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