Onefone Australia Pty Ltd v One.Tel Ltd

Supreme Court of NSW|2008-12-12|Before: Barrett J, Santow J

Introduction 1 On 4 and 5 November 2008, I heard argument on three interlocutory processes raising issues in relation to company liquidators and winding up that are, to a large extent, unexplored. 2 On 6 November 2008, however, the applicants under two of the interlocutory processes announced that they no longer pressed for the relief sought; and that they no longer opposed the grant of the relief sought in the third interlocutory process (nor did they consent to the grant of that relief). Orders disposing of those matters were subsequently made. 3 On 7 November 2008, I completed the hearing of the third interlocutory process which is confined to matters concerning a liquidator's remuneration and expenses. 4 The issues ventilated before me concern the winding up of One.Tel Limited or, more particularly, the part of that winding up placed by the court in the hands of Mr Weston as special purpose liquidator. They arise in a context where a committee of inspection appointed for the purposes of the winding up has been recognised in certain judgments of the court as well placed to play a special role in the particular circumstances. 5 Before referring to the claims made through the sole remaining interlocutory process, I should refer to some matters of background. Background 6 The winding up of One.Tel is a creditors voluntary winding up that arose in July 2001 pursuant to s 446A of the Corporations Act 2001 (Cth) as a sequel to Part 5.3A administration. Mr Sherman and Mr Walker were the administrators. They became and remain liquidators. I shall refer to them as "the general liquidators". 7 On 23 December 2003, Windeyer J made an order appointing Mr Weston to be an additional liquidator of One.Tel: see Onefone Australia Pty Ltd v One.Tel Ltd [2003] NSWSC 1228; (2003) 48 ACSR 562. The order appointing Mr Weston defined a special purpose for which he was appointed: "On the assumption that the Company became insolvent as a result of the cancellation of the Renouncable Rights Issue, the Special Purpose Liquidator consider and make recommendations to the creditors as to whether: (a) any rights of action exist in respect of which there is a limitation period for the commencement of any such action of less than 6 years; and if necessary (b) any action should be commenced against any person in relation to any such rights of action referred to in subparagraph (a) above; and (c) the Special Purpose Liquidator should apply to extend the limitation period of any such action." 8 The reference to "the cancellation of the renounceable rights issue" was a reference to certain events that occurred very shortly before the appointment of administrators in May 2001. 9 The functions of the special purpose liquidator have been extended and varied by orders of the court on several occasions since Windeyer J made the appointment on 23 December 2003. The most recent such order was made by me upon the special purpose liquidator's ex parte application on 22 October 2008. Following the making of that order, the function is described in these terms (references to "the SPL" being references to Mr Weston as special purpose liquidator and references to "the COI" being references to the committee of inspection"): "[T]he purpose of the SPL's appointment shall be to: (i) consider and make recommendations to the creditors of One.Tel as to whether: (a) any rights of action exist in relation to the cancellation of the RRI; (b) any rights of action exist in relation to the decision to appoint voluntary administrators to One.Tel on 29 May 2001. (c) any action should be commenced against any persons in relation to any such rights of action referred to in sub-paragraphs (a) and (b) above; and (ii) in the event that the SPL recommends to the COI that an action within Order 3(i)(c) above be commenced and the COI, by majority, accepts or does not oppose that recommendation, to commence any such proceedings in the name and on behalf of One.Tel in the manner in which the SPL thinks fit. (iii) perform such work as the SPL considers necessary to advise the COI concerning such proceedings on or before 28 September 2007 or any adjourned date of the meeting of the COI of 28 September 2007, notwithstanding the filing of proceedings by the SPL on 25 May 2007 in relation to the cancellation of the RRI; (iv) perform such work as the SPL considers necessary to make final recommendations to the COI in accordance with these orders, including but not limited to the following: (a) to apply for a 6 month extension of time from 25 November 2007 to 25 May 2008, or such other extension as the SPL considers necessary, for service of the Statement of Claim in the Proceedings. (b) to amend the Statement of Claim in the proceedings as the SPL considers necessary including by way of application to the Court for leave if required; (c) to take all necessary steps to obtain funding to prosecute the Proceedings; (d) to take all necessary steps to continue with the restored public examinations of Messrs Darren Miller and Martin Green; (e) to make application to a Corporations Judge for the issue of further examination orders to such persons as the SPL considers necessary; (f) to instruct his lawyers to prepare an advice on evidence regarding the Proceedings; (g) to apply for a further 6 month extension of time from 25 May 2008 to 25 November 2008, or such other extension as the SPL considers necessary, for service of the Statement of Claim in the Proceedings. (h) to participate in negotiations to settle the Proceedings; and (j) to apply for a further 6 month extension of time from 25 November 2008 to 25 May 2009, or such other extension as the SPL considers necessary for service of the Statement of Claim in the Proceedings." 10 The order of 22 October 2008 added subparagraphs (h) and (j). 11 A difficulty recognised at a fairly early stage of the special purpose liquidator's administration was that he had no insight into the financial resources available in the winding up. The general functions of collecting moneys and making decision regarding their expenditure resided with the general liquidators. While the special purpose liquidator was given a specific function, there was initially no provision made for the funding of his activities. 12 It was recognised at an early point that the committee of inspection played a statutory role, at least in relation to remuneration, as distinct from expenses or disbursements. Certain orders with respect to remuneration and expenses were made by Windeyer J on 29 April 2004 following a judgment delivered by his Honour on 22 April 2004. The substance of the April 2004 orders was referred to in a judgment delivered by me on 15 August 2006 (Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 815; (2006) 58 ACSR 466 at [7] - [8]: "[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 2003-31 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 …'." 13 The judgment of Windeyer J of 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." 14 At a later stage, the arrangement under which the general liquidators played a role in relation to the remuneration and expenses of the special purpose liquidator remuneration were reviewed. I said at paragraph [13] of the judgment of 15 August 2006 (above) at [13] - [14]: "[13] 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 In the result, the decision of 15 August 2006 was as stated at [21] to [23] of the judgment: "[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." 16 There were thus directions to the general liquidators and the special purpose liquidator which, as it were, established a fund for meeting expenses of the special purpose liquidator, as distinct from remuneration. The extent of the fund was determined by the court. 17 By December 2006, that fund had been exhausted and the special purpose liquidator approached the court again. In a judgment of 20 December 2006 (Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447), White J noted the unusual position occupied by the special purpose liquidator. His Honour observed that the special purpose liquidator is "not in as good a position as would be a liquidator in the usual course to decide whether moneys spent on legal costs and disbursements in investigating potential causes of action relating to the cancellation of the renounceable rights issue would be moneys well spent". His Honour added that, for the reasons given in my judgment of 15 August 2006, it was not appropriate for the general liquidators to be in a position to exercise influence over the special purpose liquidator's expenditures. White J then said at [10] - [12]: "[10] As a matter of practice, the special purpose liquidator has been providing the members of the Committee of Inspection with at least summaries of the legal expenses incurred, and has provided the members of the Committee with a budget of future expenditure on legal costs. The Committee has de facto assumed a greater role in overseeing such expenditures than would normally be the case.

[11] It is not appropriate that the special purpose liquidator be required to make repeated applications to the Court for approval of his funding. Such applications themselves carry costs. Nor is the Court in a position to make an informed assessment as to the appropriateness of the expenses.

[12] It appears to me that, by default, the Committee of Inspection should perform the role, in the particular circumstances of this case, of considering the appropriateness of the special purpose liquidator's expenditure on legal costs." 18 In conformity with the views thus expressed, White J then made a direction as follows: "Peter Walker and Steven Sherman, as liquidators of One.Tel, would be justified in paying to Paul Gerard Weston, in his capacity as special purpose liquidator of One.Tel, from the assets of One.Tel, such amounts as Mr Weston certified: (a) are legal costs and disbursements properly incurred and payable by him in performing the functions required to be performed by him as special purpose liquidator, in conformity with orders of the court; and (b) have been approved for payment or not objected to by a majority of the Committee of Inspection, after the provision to all members of the committee, of the bills of costs or memoranda of fees for which payment is sought (not including disclosure of information to which client legal privilege or legal professional privilege attaches), and such other information as the committee required, within seven days of notification by the special purpose liquidator to Messrs Walker and Sherman of such certification." The present application 19 It is against this background that I approach the one interlocutory process that I am required to determine, being an interlocutory process filed by the special purpose liquidator. 20 By that interlocutory process, the special purpose liquidator seeks the following orders in relation to his remuneration: "3. An order that the remuneration of the SPL be determined as follows: (a) for March 2008, the balance owing being the amount of $109,567.76 including GST; (b) for April 2008, the balance owing being the amount of $47,026.55 including GST; (c) for May 2008, the amount of $57,988.03 including GST; (d) for June 2008, the amount of $37,463.79 including GST. 4. A direction that Peter Walker and Steven Sherman, as liquidators of One.Tel, pay within 7 days the amounts referred to in paragraphs 2 and 3 above to the SPL from the assets of One.Tel." 21 Orders are also sought in relation to fees and disbursements billed by lawyers retained by the special purpose liquidator: "2. An order that the legal costs and disbursements of the SPL be approved as follows: (a) for March 2008, the balance owing being the amount of $204,342.18 including GST; (b) for April 2008, the balance owing being the amount of $133,230.35 including GST; (c) for May 2008, the amount of $146,899.15 including GST; (d) for June 2008, the amount of $100,665.35 incluiding GST. 2A. An order that order number 1 made in these proceedings on 20 December 2006 be varied to read, in relation to legal fees and expenses incurred by the SPL on or after 1 July 2008: 'Peter Walker and Steven Sherman, as liquidators of One.Tel, would be justified in paying to Paul Gerard Weston, in his capacity as special purpose liquidator of One.Tel, from the assets of One.Tel, such amounts as Mr Weston certifies: are legal costs and disbursements properly incurred and payable to him in performing the functions required to be performed by him as special purpose liquidator, in conformity with the orders of the court within seven days of written notification by the special purpose liquidator to Messrs Walker and Sherman of such certification.'" 22 These claims must be approached in the light of the relevant statutory regime. It is to this that I now turn. The statutory provisions governing the special purpose liquidator 23 The winding up of One.Tel is, as I have said, a creditors voluntary winding up. It acquired that character by operation of s 446A. 24 The order of 23 December 2003 appointing Mr Weston to be an additional liquidator did not refer to any statutory provision under which the appointment was made. Nor did the judgment. 25 The power of the court to make such an appointment in a winding up such as this is nevertheless clear. It was referred to in my judgment in Lo v Nielsen & Moller Autoglass Pty Ltd [2008] NSWSC 407; (2008) 26 ACLC 497 at [26] to [30]. There is no need to repeat in any detail here what was said there. It is sufficient to say that, in a winding up by the court, the power of the court to appoint an additional liquidator and to assign a special function to that liquidator is well established (see, for example, Re Obie Pty Ltd (No 4) (1984) 8 ACLR 967, Re Spedley Securities Ltd (1991) 4 ACSR 555, Advance Housing Pty Ltd v Newcastle Classic Development Pty Ltd (1994) 14 ACSR 230, McGrath; Re HIH Insurance Ltd [2006] NSWSC 385). Under s 511(1)(b) (a provision applying to both members voluntary winding up and creditors voluntary winding up), the court may exercise in a voluntary winding up any power that it might exercise if the company were being wound up by the court. The power to appoint an additional liquidator to perform a special function is therefore exercisable in a voluntary winding up: Re Cobar Mines Pty Ltd (unreported, NSWSC Santow J, 22 June 1998). 26 The appointment by the court of an additional liquidator in a creditors voluntary winding up does not change the character of the winding up. It remains a creditors voluntary winding up, albeit one in which one of the liquidators has been appointed by a process different from that which caused the other liquidators to be in office. The committee of inspection and its functions 27 Section 548(1) of the Corporations Act makes provision for the appointment of a committee of inspection by creditors and contributories. A person appointed to be a member of such a committee "represents" either creditors or contributories: s 548(1). The provisions about appointment, tenure and proceedings of a committee of inspection are in Division 5 of Part 5.6 of the Act. They therefore apply alike to winding up by the court and voluntary winding up. 28 Although the appointment mechanism is the same regardless of the type of winding up, the functions of a committee of inspection differ according to whether the winding up is a winding up by the court or a voluntary winding up. A helpful comparative table appears in an article by Lindsay Powers, "The liability of members of creditor committees - the price for staying 'close to the action'" (2005) 13 Insolv LJ 195 at 196: Power Corporations Act reference Court Ordered Liquidation Voluntary Liquidation Agree liquidator's remuneration s 473(1)(3)(a) Yes Yes Fix liquidator's remuneration s 499(3) No Yes Authorise liquidator to compromise debts s 477(2A) s 506(2) Yes Yes Authorise liquidator to make long term agreements s 477(2B) s 506(2) Yes Yes Give directions to which liquidator must have regard s 479(1) Yes No Allow directors to continue to exercise powers in liquidation s 499(4) No Yes Authorise liquidator to accept shares etc for transfer of property s 507(10) No Yes Direct destruction of company's books s 542(3)(c) No Yes Direct liquidator to invest surplus cash s 543(1) Yes Yes Direct liquidator to realise investments s 543(2) Yes Yes

29 Of the three distinctions reflected in this table, two are relevant to the present case - one directly and the other less directly. It is appropriate that each be examined briefly. The committee's power in relation to liquidator's remuneration 30 The table indicates that a committee of inspection may fix a liquidator's remuneration in a creditors voluntary winding up but not in a winding up by the court. That was the position under the law as it stood when the table was prepared in 2005. The general proposition remains valid since the enactment of the Corporations (Insolvency) Amendment Act 2007 (Cth), even though aspects of the remuneration fixing procedures under both types of winding up have been changed by that Act. For reasons to be mentioned presently, it is unnecessary in this case to have regard to the new provisions about remuneration fixing that came into force on 31 December 2007. 31 The starting point in any discussion of liquidator's remuneration is the proposition that a liquidator in any type of winding up has a clear entitlement to remuneration and a clear entitlement to have his or her remuneration fixed. There is no expectation that a liquidator will act gratuitously. The right to remuneration is not subject to negotiation or to discretionary withdrawal. The only question that can ever be contentious is the amount of the remuneration. 32 In the case of a creditors voluntary winding up, the matter of quantifying a liquidator's remuneration is dealt with by s 499(3) of the Corporations Act. In the present case, regard must be had to s 499(3) as it stood before the commencement of the Corporations (Insolvency) Amendment Act 2007. Section 1479(7) of the Corporations Act, which was added by that amending Act, says that the amendments the Act made to s 499(3) apply to a liquidator only if the winding up of the company begins on or after 31 December 2007. In this case, of course, the winding up began in 2001.

33 Section 499(3), in the form applicable to this case, is in these terms: "The committee of inspection, or, if there is no such committee, the creditors, may fix the remuneration to be paid to the liquidator." 34 Where, as here, a committee of inspection is in office, the function of fixing remuneration is exercisable by the committee alone. Only if there is no committee of inspection in office may be creditors as a body fix remuneration. 35 The court is given by s 499(3) no role in the remuneration fixing process. But as I observed in Re Walker and another (as liquidators of One.Tel Ltd) [2005] NSWSC 557; (2005) 54 ACSR 11, (at [33]), the court may, in some circumstances, come to play such a role: "If the statutory means of fixing the liquidators' remuneration prescribed by s.499(3) are ultimately shown to be unworkable (as in, for example, the Colgate case [ Re Colgate; Ex parte trustee of Property of the Bankrupt [1986] Ch 439]), the court will be in a position where it can, upon an appropriate application being made, itself determine the quantum of remuneration pursuant to s.511(1)(a)." 36 That observation was made after reference to the possibility that the mechanism created by s 499(3) may have become unworkable because "the liquidators, having exhausted all reasonable avenues of discussion and debate with the committee of inspection, considered that they had reached an impasse". If that were seen to be the case, there would be "a question arising in the winding up of a company" (to quote the words of s 511(1)(a)) - that is, a question as to the appropriate amount of remuneration - and the court would have power under s 511(2) to determine the question if satisfied that it would be "just and beneficial to do so". A liquidator has standing to invoke that jurisdiction. 37 The present application by the special purpose liquidator as to remuneration raises the question whether circumstances exist such as to allow the court to answer the question of the appropriate amount of the special purpose liquidator's remuneration for relevant past periods and, if so, what the quantification should be.

No power to give directions to which the liquidator must have regard 38 The second distinction between the two types of winding up appearing from the table at paragraph [28] above concerns the item in the table "Give directions to which liquidator must have regard". Section 479(1) - a provision appearing the Division 2 of Part 5.4B and therefore applying only in a winding up by the court or in insolvency - is as follows: "Subject to this Part, the liquidator must, in the administration of the property of the company and in the distribution of the property among its creditors, have regard to any directions given by resolution of the creditors or contributories at any general meeting or by the committee of inspection, and, in case of conflict, any directions so given by the creditors or contributories override any directions given by the committee of inspection." 39 This has no counterpart in the provisions dealing with voluntary winding up. 40 Committees of inspection were imported into company liquidation from bankruptcy. Provision for such committees in the company context was first made in England by s 6 of the Companies (Winding-up) Act 1890 (UK). Analogous provisions were introduced in New South Wales upon the enactment of the Companies Act 1936. Section 238 of that Act provided for the appointment of such a committee in a winding up by the court. Section 275 made like provision in the case of creditors voluntary winding up. Section 232(1) obliged a liquidator in a winding up by the court to have regard to any directions that might be given by the committee of inspection. There was no equivalent or similar provision in the case of a creditors voluntary winding up. That distinction is thus one that continues to the present day. 41 It has been recognised in a number of cases that a committee of inspection may, in a practical sense, have utility going beyond its formal powers. In Re Gallard; Ex parte Gallard [1896] 1 QB 68, a bankruptcy case, Kay LJ said at 72: "The duties of a committee of inspection in bankruptcy are obvious. They have to watch the administration of the bankrupt's estate, and to control to any extent they may think right that which is done by the trustee, by the solicitor, or by any one else who takes part in administering the estate." 42 The Companies (Consolidation) Act 1908 (UK) empowered the court to appoint a committee of inspection in a voluntary winding up, with a meeting of creditors determining whether such an application should be made to the court. In Re Webb 1922 SC 226, such an application was made in relation to a Scottish winding up. Under the law in force in Scotland, the jurisdiction to appoint a committee pursuant to the Act of 1908 was available, but no provision was made for the exercise of powers or the performance of functions by a committee once appointed. 43 The Court of Session (the Lord President (Clyde), Lord Mackenzie, Lord Skerrington and Lord Cullen) nevertheless granted the application. The judgment is short and may be quoted in full: "There is no doubt that section 188 of the Companies (Consolidation) Act, 1908, authorises the appointment of a committee of inspection in Scotland. There is some doubt as to what the committee will be entitled to do once it is appointed; but, inasmuch as in this case both the petitioning creditor and the liquidator appointed by the Company are of the view that there is a practical purpose to be served, we will grant the prayer of the petitioner." 44 It may be inferred that the court accepted submissions recorded as follows in the report: "Although the powers of such a committee, so far as Scottish liquidations were concerned, were undefined, it would serve a useful purpose, as it would exercise a general power of inspection, and would provide the liquidator with a body of persons with whom he could consult on questions of policy and other matters of difficulty." 45 In the absence of any counterpart of s 479(1) in relation to creditors voluntary winding up, it must be accepted that, unless a particular power is conferred by statute on a committee of inspection in such a winding up, the committee's position involves, at the very most, Bagehot's view of the privileges of the Crown, that is, to be consulted, to advise and to warn (W Bagehot, "The English Constitution", Collins, 1963, p 67). A liquidator in a creditors voluntary winding up is not bound to have regard to any directions the committee of inspection may give; and the committee has no formal power to direct the liquidator.

A liquidator's right to recover expenses 46 Submissions on this subject proceeded on the basis that a liquidator has a general law right to be indemnified for "all proper expenses" out of the assets available in the winding up. The words quoted are those used in relation to a liquidator by Young J in Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280. His Honour drew the particular proposition from the judgment of McLelland J in Grime Carter and Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158. That, however, was a case about whether trust assets were available to meet the costs and expenses of the winding up of a corporate trustee. It does not appear to stand as authority for the proposition that a liquidator stands, in relation to assets available in the winding up, in the same position as is occupied by a trustee in relation to trust property so that a right of indemnity or recoupment is available for liabilities properly incurred. 47 Rather, it seems to me, a liquidator's right to have assets available in the winding up applied to meet expenses "properly incurred" by the liquidator is a right that comes from s 556(1) of the Corporations Act. 48 For the purposes of s 556(1), a liquidator is a "relevant authority". Expenses "properly incurred by a relevant authority" may fall within s 556(1)(a). To the extent that they do not (and are not "deferred expenses"), they fall within s 556(1)(dd); and if they are "deferred expenses" (an attribute of which is that the expenses be "properly incurred by a relevant authority"), they will be within s 556(1)(de). 49 These three provisions between them cover all expenses "properly incurred by a relevant authority". The distinctions drawn by s 556(1) go only to the relativities among different types of "expenses properly incurred by a relevant authority" in the application of assets "in priority to all other unsecured debts and claims". 50 In Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2002] VSC 576; (2002) 174 FLR 1, it was recognised that "properly incurred" directs attention to the question whether the expenses relate to the due conduct of some aspect of the administration and the due discharge of the duties of the office. Warren J quoted a passage in the judgment of Gummow J in Re Just Juice Corporation Pty Ltd (1992) 8 ACSR 444 at 544 concerning the question whether, for the purposes of a contractual indemnity, expenses of a receiver were "properly incurred" which concluded: "The phrase 'properly incurred' has been construed as meaning 'reasonably as well as honestly incurred' ( Re Beddoe [1893] 1 Ch 547 at 562) and the inquiry may extend to an examination of the general performance by the trustee of the 'duty to execute the trust with reasonable diligence and care': RWG Management Ltd v Commr for Corporate Affairs [1985] VR 348 at 396." 51 Another aspect of the "properly incurred" concept was referred to by Finkelstein J in Re Korda; Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424. Speaking of statutory provisions under which voluntary administrators are entitled to expenses "properly incurred", his Honour said (at [50] - [51]): "[50] … The right to be indemnified for properly incurred expenses is covered by ss 443A and 443D. Nevertheless, I wish to make one or two observations about disbursements, particularly legal fees which are often the largest component of an administrator's costs. My observations derive from the comments of Ferris J in Mirror Group Newspapers plc v Maxwell (No 2 ) [1998] 1 BCLC 638 and Lightman J in an article entitled 'Office Holders' Charges - Costs Control and Transparency' (1998) 11 Insolvency Intelligence 1.

[51] An insolvency practitioner stands in a fiduciary relationship with the creditors. He must act with the same care as a prudent businessman would act in his own affairs at his own cost and risk. A prudent businessman will run litigation as a last resort and when he embarks upon litigation he will keep it under close scrutiny. A prudent businessman will shop around to ensure that he obtains the services of good lawyers (solicitors and counsel) at the best possible rate. Personal relationships should not obscure the practitioner's duty. The sole selection criteria should be the benefit to him as a litigant. So he will avoid cosy relationships with solicitors and counsel. He will negotiate over fees with both solicitors and counsel. He will closely monitor the fees as they are incurred. (In some jurisdictions contingency fees are permitted and where they are they should be exploited). Overall, this approach is likely to cause disquiet among the profession. Lightman J said that the requirement of adopting the perspective of the insolvency practitioner expending his own money in place of the perspective of spending his client's money is a 'sea change'. If made it is a change that will restore public confidence in this area of commercial life." 52 No process of screening or evaluation exists in relation to a liquidator's recoupment of expenses. While remuneration of a liquidator must be fixed in a way specified in the legislation, a liquidator is at liberty simply to resort to available property to cover expenses. A question whether particular expenses were incurred (or, if incurred, were properly incurred) is likely to arise upon an inquiry into the propriety of a liquidator's conduct after the event. The statutory context in which this application must be approached 53 I have concentrated on the powers of a committee of inspection in a creditors voluntary winding up for two reasons. First, it must be recognised that such a committee is given, in this case, a clear and positive role to play in the matter of fixing the liquidator's remuneration. The power to act must be considered to co-exist with a responsibility to act. Only if the court sees clearly that the committee will not act and that the system provided for by the legislation has become unworkable will it be open to the court to conclude that there is, as to the quantum of remuneration, a question in relation to the winding up that stands in need of an answer, so that the court may proceed under s 511(2) to determine the question. 54 Second, it must also be recognised that the committee of inspection in a creditors voluntary winding up has no power to direct the liquidator, no power to decide what the liquidator should or should not do and no power to control or monitor expenditure by the liquidator. In the present case, the committee has been willing to take on a task of checking legal costs and disbursements incurred by the special purpose liquidator. Its willingness to do so was a factor in the court's decision of 20 December 2006 to make the direction to the general liquidators set out in paragraph [18] above. In undertaking that task, the committee of inspection has not been performing any function specifically conferred by the legislation. Rather, it has been exercising general oversight of the kind referred to at paragraphs [41] to [45] above. Remuneration 55 By the conclusion of the hearing, no opposition was offered by the committee of inspection to the making of orders 3 and 4, as set out at paragraph [20] above. That being so and in the light of the evidence that has been given about work done by the special purpose liquidator and the charging rates, that order will be made. The quantum has been satisfactorily explained. 56 The committee of inspection did not go so far as to accept that remuneration should be paid as claimed. There thus remained a "question" of the s 511(1)(a) kind in need of determination as outlined at paragraphs [35] and [36] above. 57 The question should be dealt with by making orders in the terms stated at paragraph [20] above. 58 While this is, in the light of recent history, the appropriate outcome in relation to the particular remuneration items dealt with by that order, it must be remembered that the committee of inspection must, of necessity, involve itself in future decisions about remuneration. The committee has a specific statutory function in relation to the matter. As a corollary, it has a specific statutory responsibility. It is not open to the committee to decide to vacate the field. It will be bound, for the future, to consider such matters as need to be considered in relation to liquidators' remuneration and to make a conscientious attempt to reach a decision on each such matter. That responsibility is a statutory responsibility. It will continue while a committee of inspection remains in office.

Expenses 59 I am also satisfied that, in the unusual circumstances of this case, there is a "question" of the s 511(1)(a) kind in relation to the legal costs and disbursements of the special purpose liquidator. 60 I have referred to the circumstances in which the special purpose liquidator's expenses came to be overseen, in a practical sense, by the committee of inspection. That system of practical scrutiny has broken down in relation to the expenses with which this application is concerned. 61 It is inappropriate, for reasons already stated, that the general liquidators play any part in the process of oversight. At the same time, however, they deserve some re-assurance that expenditures by the special purpose liquidator that they are asked to recognise as "properly incurred" and to pay accordingly are within that description. 62 In the absence of assessment by the committee of inspection, that re-assurance can, I think, be best achieved by a regime under which directions are from time to time sought and given by the court as to whether the general liquidators will be justified in treating particular expenses incurred by the special purpose liquidator as "properly incurred" by him. Of course, the general liquidators do not need any direction of the court in this respect. But they will no doubt prefer to work according to such guidance or re-assurance. 63 I am conscious of the observations made by White J at paragraph [11] of his judgment of 20 December 2006 (see paragraph [17] above). And it must be accepted that it is far from ideal for the special purpose liquidator to have to keep coming back to court. But if the default mechanism to which White J referred to at paragraph [12] does not operate in relation to particular expenses, that seems to be the only available course, unless the general liquidators see no need for the particular form of guidance and re-assurance. 64 Now that the litigation that came to a head before me on 4 to 7 November 2008 has passed, it may be that the committee of inspection will again see its way clear to playing the informal role of overseeing the special purpose liquidator's expenditure that it was previously willing to play. If that should turn out to be the case, matters may still be dealt with in accordance with the regime set out at paragraph [18] above, which regime will continue in force. Conclusion 65 The orders 2, 3 and 4 set out paragraphs [20] and [21] above will be made. Order 2A will not be made. There will be an order that the proper costs and expenses of the special purpose liquidator in making the application be paid out of the assets of One.Tel. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Corporations (Insolvency) Amendment Act 2007(Cth)

CITATION : Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335

Advance Housing Pty Ltd v Newcastle Classic Development Pty Ltd (1994) 14 ACSR 230 Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2002] VSC 576; (2002) 174 FLR 1 Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 Grime Carter and Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158 Lo v Nielsen & Moller Autoglass Pty Ltd [2008] NSWSC 407; (2008) 26 ACLC 497 McGrath; Re HIH Insurance Ltd [2006] NSWSC 385 Onefone Australia Pty Ltd v One.Tel Ltd [2003] NSWSC 1228; (2003) 48 ACSR 562 Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 815; (2006) 58 ACSR 466 CASES CITED : Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447 Re Cobar Mines Pty Ltd (unreported, NSWSC Santow J, 22 June 1998) Re Gallard; Ex parte Gallard [1896] 1 QB 68 Re Just Juice Corporation Pty Ltd (1992) 8 ACSR 444 Re Korda; Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424 Re Obie Pty Ltd (No 4) (1984) 8 ACLR 967 Re Spedley Securities Ltd (1991) 4 ACSR 555 Re Walker and another (as liquidators of One.Tel Ltd) [2005] NSWSC 557; (2005) 54 ACSR 11 Re Webb 1922 SC 226

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