Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 815 | Case summary

5291/03 ONEFONE AUSTRALIA PTY LIMITED & 3 ORS v ONE.TEL LIMITED (IN LIQUIDATION) & 2 ORS JUDGMENT 1 One.Tel Limited is subject to the form of creditors' voluntary winding up that follows on from voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). Mr Sherman and Mr Walker are the liquidators, having been appointed at the second meeting of creditors held in the Part 5.3A administration. 2 There is also in office, however, a so-called "special purpose liquidator", Mr Weston. He was appointed a liquidator of One.Tel Limited by order of the court. The appointment was made for a specific purpose, namely, to investigate a particular series of events that had occurred shortly before the voluntary administration began and to make recommendations to creditors as to whether any rights of action existed in relation thereto. It was perceived that Mr Sherman and Mr Walker might possibly be made parties to any resultant litigation. 3 The court's power to appoint an additional liquidator to perform a particular function was, in this case, exercised in a creditors' voluntary winding up (cf Re Obie Pty Ltd (No 4) (1984) 8 ACLR 967; Re Spedley Securities Ltd (1991) 4 ACSR 555). 4 On 31 July 2006, I heard two interlocutory processes, one filed by Mr Sherman and Mr Walker (whom I shall call "the principal liquidators") and the other filed by Mr Weston ("the special purpose liquidator"). The principal liquidators seek a direction that they, as liquidators, are justified in paying $250,000 to the special purpose liquidator in order for him to comply with orders made on 26 April 2006. The special purpose liquidator, by contrast, seeks a direction that the principal liquidators are justified in paying to him a sum of $750,000 in order for him to comply with the orders made on 26 April 2006. There is thus acceptance by both the principal liquidators and the special purpose liquidator that the former should pay the latter something in order that he might comply with the orders made on 26 April 2006. But there is disagreement about the amount.

7 In approaching the present applications, it is necessary to have regard to certain aspects of the existing orders. The orders of 23 December 2003 by which the special purpose liquidator was appointed said nothing about the financial aspects of the appointment and functions of the special purpose liquidator. On 29 April 2004, the court made further orders. Under the first order, the special purpose liquidator was required to give to the principal liquidators all material placed by him before the committee of inspection relating to his remuneration claim for the period 23 December 2003 to 31 March 2004, such documents as might thereafter be placed before the committee in relation to the special purpose liquidator's future remuneration claims and a summary of the special purpose liquidator's disbursements. The orders of 29 April 2004 contained a direction that the principal liquidators pay the amounts referred to in the several items mentioned in the first order, subject to this proviso: "In the event that the GPL [ie, the principal liquidators] take issue with any component of the SPL's [ie, the special purpose liquidator's] claims for payment of his remuneration and expenses, after having regard to the matters noted in paragraph 3 below, and the GPL has taken such issues up with the SPL, and decides to make application to the Court for directions in relation to the disputed component of the SPL's claim for payment of his remuneration and expenses, he shall forthwith pay to the SPL all amounts not disputed by the GPL." 8 In the orders of 29 April 2004, the court noted that the principal liquidators were "entitled to dispute" remuneration and expenses of the special purpose liquidator but only "by having regard to the principles expounded by Justice Windeyer in his judgment delivered on 22 April 2004 …" 9 The judgment of Windeyer J delivered on 22 April 2004 contained relevant passages as follows: "I have expressed the view that the general purpose liquidators, as the controllers of the company, are entitled to have presented to them a copy of the claim for remuneration as presented to and approved by the committee of inspection and are entitled to have presented to them copies of the bills of costs and claims for counsel's fees in respect of which the expenses are sought." "[Unless] there is something clearly untoward in the accounts presented for remuneration and for costs, then the general purpose liquidators should properly pay those amounts as claimed by the special purpose liquidator and so far as the remuneration is concerned approved by the committee of inspection. If there were something in the accounts which showed that on any basis the work done was outside the terms of the appointment, then it would seem to me that it is a matter for the general purpose liquidators to take up in first instance with the special purpose liquidator and, if necessary, and I hope it will not be necessary, for an application to the court for directions." "The same seems to me to apply in respect of the claim for costs. One would expect the costs claim to be reasonable. If it appeared there would be some claim for an hourly rate which on no basis could be justified then the general purpose liquidators having the general control or the assets of the company for the benefit of the creditors should not pay that but should do something about that in the manner to which I have just referred." 10 On 16 April 2004, the court gave directions to the special purpose liquidator concerning the performance of the special functions he had been appointed to perform. On 26 April 2006, further orders were made. These varied the special purpose liquidator's functions and gave directions as to certain things to be done by him. 11 Affidavits filed in support of each of the interlocutory processes now before me put into evidence a substantial quantity of correspondence between the principal liquidators (and their lawyers) on the one hand and the special purpose liquidator (and his lawyers) on the other. Six things emerge from this correspondence: first, that, as regards the special purpose liquidator's remuneration as such, it is accepted on all hands that the decision-making function rests with the committee of inspection; second, that there are differences of opinion as to the proper scope of the special purpose liquidator's functions as prescribed by the court's orders (including, in particular, just what must or should be done by way of "monitoring" of the proceedings in Australian Securities and Investments Commission v Rich, currently being heard by Austin J); third, that the principal liquidators have a degree of unease about the reviewing or supervisory role as to expenditure by the special purpose liquidator in which they have been cast by the court's orders; fourth, that the unease stems in large measure from the fact that the principal liquidators have no means of judging the appropriateness or propriety of the special purpose liquidator's expenditures because they can obtain no totally reliable particulars of what work has been done and how that work may relate to the special purpose liquidator's tasks; fifth, that the principal liquidators would prefer a regime under which they do not have the reviewing or supervisory role in relation to expenditure; and, sixth, that substantial quantities of time and money have been expended on essentially fruitless interchanges between the principal liquidators and the special purpose liquidator regarding the remuneration of and expenses incurred by the latter. 12 It is in these circumstances that both parties seek the court's sanction for a regime which sees a fund placed under the sole control of the special purpose liquidator for retention and application by him towards expenses of his administration (but not, it must be stressed, his remuneration) in the way in which any liquidator would retain and apply the fund under administration - that is, without review and supervision by, and without any obligation to answer to, anyone occupying a position akin to that occupied by the principal liquidators in this particular case. 13 In approaching these applications, I would make one point at the outset. It is, in my view, inappropriate that the principal liquidators have any control over expenditures by the special purpose liquidator. I say this because of the rationale for the appointment of the special purpose liquidator. The appointment was made because of a well-grounded apprehension that the principal liquidators were not in a position (or might not be in a position) to exercise fully dispassionate decision-making in respect of a particular matter that had arisen in the winding up. It was with a view to placing that matter under the control and oversight of someone not affected by the possibility of self-interest in relevant decision-making that Mr Weston was appointed as special purpose liquidator. It would undermine the objective of the appointment if the principal liquidators could, by denying or threatening to deny funds, exercise influence over the conduct of the special purpose liquidator. 14 I must emphasise that, in saying what I have just said, I do not intend to suggest that the principal liquidators have in any way attempted to influence the special purpose liquidator as regards the performance of his functions. I am satisfied that they have been properly concerned to carry out their responsibilities as they see them. 15 It is appropriate, at this point, to refer to certain matters concerning the committee of inspection. Such a committee is in office in the winding up, having been appointed under s.548. In addition, the evidence (both in this application and in other matters that have been before the court) is that the committee is active and plays a continuing role. 16 On 21 July 2006, the committee of inspection passed three relevant resolutions. They are recorded in the minutes of the meeting as follows: "1. The Special Purpose Liquidators [sic] remuneration (including GST and disbursements) be approved in the amount of $50,154.09. This motion was passed unanimously. 2. That the joint liquidators apply to the Court for directions as to future fees and costs. The committee felt that the appropriate fund for future fees was for an amount of $250,000. The committee noted that it may be necessary for further applications to the Court to be made if this fund is exhausted. This motion was passed unanimously. 3. In relation to past legal costs, being the fees identified in NOT Lawyer's [sic] letter of 22 June 2006, the committee does not feel that it is able to express a view as to whether these fees are appropriate and have been incurred in compliance with the orders of the Court. This motion was passed unanimously." 17 The first resolution reflects the role of a committee of inspection in actually fixing or agreeing a liquidator's remuneration. Where, as in this case, the court has installed a special purpose liquidator in a creditors' voluntary winding up, it may be assumed that the committee's function under s.499(3) of fixing remuneration extends to that additional liquidator. If that assumption is wrong and s.473(3) somehow applies, the position is, in every practical sense the same. At all events, no question arises upon the present application as to the method of fixing the special purpose liquidator's remuneration or the means by which such remuneration is claimed and paid. Nor is there any question about the role of the committee of inspection in that respect. 18 The second resolution shows that the committee has accepted the notion that, as to future expenses (as distinct from both remuneration and past expenses), the special purpose liquidator should have available a finite fund for application as and when occasion requires. On that subject (at least as to the future), there therefore appears to be unanimity as among the principal liquidators, the special purpose liquidator and the committee of inspection. Given that the special purpose liquidator will be subject to the ordinary duties and responsibilities of a liquidator in relation to conservation and application of funds in his hands, there is no reason why the court should not accept that agreement and take steps to facilitate such an outcome. 19 There is, however, an issue regarding legal expenses already incurred by the special purpose liquidator. The special purpose liquidator's proposal that the fund to be made available be of $725,000 presumably has regard to past legal expenses as well as future legal expenses. The third resolution of the committee of inspection was passed after discussion about fees and disbursements of $146,979.44 plus GST rendered by the special purpose liquidator's solicitors, NOT Lawyers, up to the end of May 2006. It was in relation to that past amount that the committee professed itself unable to reach a view as to appropriateness and consistency with the court's orders - in other words, as to whether the costs and disbursements related to the due and proper performance of the functions assigned to the special purpose liquidator by the court. 20 It is a matter for some concern that the committee of inspection does not consider itself to be sufficiently informed to form an opinion regarding the costs and disbursements for past legal services. To the extent that the committee's inability may stem from any failure of the special purpose liquidator to provide relevant information, the special purpose liquidator should take prompt action to remedy the deficiency so that the committee may act. But if, as some of the evidence tends to suggest, the problem may arise in some measure from concerns about confidentiality and legal professional privilege, the special purpose liquidator should consider an application to the court for directions regarding the appropriateness of paying the past legal expenses. As things currently stand, the court is in no better position than the committee to make any relevant assessment and, with the committee having expressly declined to express a view, the court could not direct the principal liquidators to make funds available to pay the legal costs and disbursements. Any concern that liquidator's expenses have been improperly incurred or are excessive ought ultimately to come before the court: see Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 at p.285. 21 At this stage, I consider the appropriate course to be that the court should give two directions to the following general effect: 1. A direction to Mr Sherman and Mr Walker that they, as liquidators, are justified in paying to Mr Weston, as special purpose liquidator, a sum of $250,000, which sum is to be identified to Mr Weston as paid to him to enable him to pay expenses (including, but not limited to, legal costs and disbursements) properly incurred by him after 31 May 2006 in performing the functions to be performed by him as special purpose liquidator in conformity with orders of the court, with no part of that sum being applied towards the remuneration of the special purpose liquidator. 2. A direction to Mr Weston that he, as special purpose liquidator, is justified in receiving a sum of $250,000 from Mr Sherman and Mr Walker, as liquidators, and in applying that sum in and towards payment of expenses (including, but not limited to, legal costs and disbursements) properly incurred by him after 31 May 2006 in performing the functions to be performed by him as special purpose liquidator in conformity with orders of the court, with no part of that sum being applied towards the remuneration of the special purpose liquidator. 22 It may be that the principal liquidators or the special purpose liquidator would prefer to see the directions in some slightly modified form. I shall defer making them for a short time so that any further submissions can be made. 23 It may also be that there will be an application to amend either or both of the interlocutory processes to bring before the court a particular proposal in relation to the past legal expenses or to vary in some way the existing orders which envisage a form of financial oversight of the special purpose liquidator by the principal liquidators, so far as expenses are concerned. **********

Onefone Australia Pty Ltd v One.Tel Ltd

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