Plaintiff v Defendant

2 The Defendant, Tonia Michau, is and was at all relevant times the sole director and shareholder of the Company.

3 The Liquidator relies on four affidavits sworn by him on:

(a) 27 October 2017 ('First Howell Affidavit');

(b) 3 September 2018 ('Second Howell Affidavit');

(c) 29 March 2019 ('Third Howell Affidavit'); and

(d) 11 April 2019 ('Fourth Howell Affidavit').

4 The Defendant relies on her affidavit sworn 8 March 2019 ('Michau Affidavit').

5 Pursuant to orders made by Efthim AsJ on 21 September 2018, Ms Michau was joined as a defendant to the proceeding, procedural orders were made for the filing of material, and the proceeding was referred to me for hearing and determination on 7 February 2019. At the request of the parties, the hearing was subsequently listed for 15 April 2019.

6 Both parties provided written outlines of submissions and made oral submissions at the hearing.

7 The Liquidator seeks approval for his remuneration totalling $121,127 (excluding GST and the $20,000 already approved by creditors and paid), broken down as follows (all amounts are exclusive of GST):

(a) For the period 12 May 2016 to 10 January 2017 ('First Period') in the amount of $80,000. This does not include the $20,000 already approved;

(b) For the period 11 January 2017 to 25 August 2017 ('Second Period') in the amount of $26,127; and

(c) For the period from 26 August 2017 to the conclusion of the liquidation ('Third Period') in the amount of $15,000.

8 For the reasons set out below, orders will be made approving the Liquidator's remuneration in the amount of $98,534 excluding GST. This is on top of the $20,000 already approved by creditors and paid.

9 The Company was registered on 19 September 2012 and, as noted above, the Defendant has been the sole director and shareholder at all relevant times.[1]

10 The Liquidator states that the Company was a family-owned business which operated as a manufacturer and wholesaler of sheepskin products.[2] The Defendant says that the products imported and manufactured by the Company were mainly car seat covers and saddlery for sale in Australia ('Business'), and that the value in the Business comprised the stock and goodwill, along with the intellectual property (being the patent design used in the manufacture of the products).[3]

11 The Defendant says that although she was the director, it was her husband Craig Michau who made all the decisions in relation to the Business, who had the expertise in the manufacturing process and was the person sourcing the product from overseas. The Defendant says that her role was generally of an administrative nature, such as processing purchase orders and issuing invoices to customers.[4]

12 The Defendant also says that the Business had been operating at a loss over the three years prior to it being placed in liquidation and was only viable because she was supporting it financially, which she did at her husband's request. The Defendant says that by December 2014 she and her husband were going to divorce, as Mr Michau had walked away from the marriage and the Business. She says that she had no desire to continue to run the Business and could not afford to support it financially any further.[5]

13 At the time of the Liquidator's appointment on 12 May 2016, the Company:

(a) Had annual turnover of approximately $700,000;[6]

(b) Had assets of $399,250;[7]

(c) Made small trading losses in 2014 and 2015 ($2,689 and $16,252 respectively);[8] and

(d) Owed $435,356.57 to unsecured creditors, of which $831.59 was owed to employee creditors and $416,759.01 was owed to the Defendant.[9] The Defendant submitted a proof of debt to the Liquidator, for $414,921, which she says was an unsecured loan from her to the Company. Taking this figure, the Defendant says her debt is over 95% of the unsecured debts owed by the Company.[10]

14 It is common ground that the Defendant appointed the Liquidator as liquidator of the Company on 12 May 2016. Whilst not explicitly stated, I understand that this was a members' voluntary winding up.

15 The Liquidator says that prior to his appointment, he was approached by Lindsay Hodgson, a finance broker, in relation to the Company.[11] The Liquidator says that Mr Hodgson told him that the Defendant was in the process of separating from her husband, they had historically operated the Business together but following the separation Mr Michau had left the Defendant to run it by herself, and that the Defendant did not want to do this and wanted to wind the Company up.[12]

16 Following that conversation, the Liquidator met with the Defendant to discuss the matter on 6 May 2016 at the Business premises ('Initial Meeting').

17 While it is common ground that the Initial Meeting occurred, the Liquidator and the Defendant do not agree on what was discussed and agreed at that meeting. Most of this is relevant to the Remuneration Application, and so I will set this out in some detail.

18 The Liquidator says that at the Initial Meeting:[13]

(a) The Defendant gave him a summary of the Business, its operations and its financial position;

(b) The Defendant said that:

(i) following her separation from Mr Michau, she did not want to run the Business alone and wanted to wind it up;

(ii) she already had a purchaser for the Business ('Pre-Appointment Purchaser'), but did not know how to sell it; and

(iii) the Company operated the Business from a building leased from her and her husband's self-managed superannuation fund ('SMSF'), that she was concerned that if the Company ceased trading it would affect the SMSF, and that the Business had a number of outstanding orders that needed to be completed and she was available to assist the Liquidator until a sale was affected.

(i) if she was concerned about the effect on the SMSF if the Business ceased operating, a liquidator could continue to trade the Business for a time;

(ii) the Business had to be sold at market value and a proper marketing campaign undertaken. As she already had a purchaser, he could trade the Business for a short time as liquidator while it was in the process of being sold to the Pre-Appointment Purchaser;

(iii) as she already had a buyer for the Business, he estimated his remuneration in carrying out the liquidation would be between $20,000 and $30,000; and

(iv) trading on a business costs a lot and, for example, if the Defendant wanted to place the Company into voluntary administration, it would cost well over $30,000 to trade the Business for the standard voluntary administration period of 28 days.

19 The Defendant says that at the Initial Meeting:[14]

(a) She and the Liquidator discussed her reasons for wanting to cease trading the Business and the financial position of the Business, that it was solvent but only because she had been providing financial assistance;

(b) She told the Liquidator that a shipment of products had been ordered by the Company and that the Business had received purchase orders accounting for most of the shipment;

(c) She informed the Liquidator that she had a customer who may be interested in buying the Business and she passed on the information of this potential purchaser. The Defendant says she did not represent that any agreement had been reached with this person, merely that an interest had been expressed;

(d) The Liquidator recommended that he should be appointed liquidator of the Company and he would trade the Business until it could be sold;

(e) The Liquidator said to her that 'the liquidation should not cost more than $30,000 but I will do it for $20,000'. She says that from this, she understood the Liquidator to mean that his fees would be capped at $20,000; and

(f) At no time during the Initial Meeting did the Liquidator qualify his estimate by saying words to the effect that 'this sum is dependent on your buyer following through' or 'this sum is dependent on the business trading on for [x] number of weeks'.

20 The Defendant says that on the basis of the Liquidator's estimate, she decided to follow his recommendation and appointed the Liquidator as liquidator of the Company.[15] The Liquidator says that after the meeting, the Defendant told her she wished to proceed with the liquidation of the Company.[16]

Previous attempt to obtain approval for remuneration

21 The Liquidator says that remuneration of $20,000 has already been approved by creditors,[17] which is not disputed.

22 The Liquidator says that he convened a meeting of creditors for 16 February 2017 ('Second Creditors Meeting') where he presented resolutions for:[18]

(a) Approval of his outstanding remuneration for the period between 12 May 2016 and 10 January 2017 in the amount of $80,000 plus GST, which does not include the $20,000 already approved ('First Proposed Resolution'); and

(b) Approval of his remuneration for the period commencing 11 January 2017 to the conclusion of the liquidation to be capped at the amount of $10,000 plus GST.

23 The Liquidator says that these resolutions were not carried, as Mr Hodgson, who had the Defendant's proxy, voted against them, and the only other creditor represented abstained from each vote.[19] Accordingly, he applies to the Court for approval of his remuneration.

24 The Liquidator deposes that the First Howell Affidavit was served on each creditor of the Company and that he received a notice of objection from the Defendant in relation to the remuneration claimed in that affidavit ('Michau Objection').[20]

25 The Practice Schedule is relatively new, having been introduced with numerous amendments made to the provisions of the Corporations Act 2001 (Cth) ('the Act') relating to external administrators by the Insolvency Law Reform Act 2016 (Cth) ('ILRA'). Amongst other things, the ILRA repealed s 473 of the Act (which had provided for the determination of liquidators' remuneration) and introduced the Practice Schedule.

26 The commencement of the new provisions concerning remuneration in Division 60 of the Practice Schedule were deferred until 1 September 2017.[21] For external administrators appointed prior to that date, s 473 of the Act continues to apply, whereas the new provisions apply to external administrators appointed after that date.[22]

27 However, in this case it was common ground between the parties that the Practice Schedule applies, rather than s 473 of the Act, despite the fact that the Liquidator was appointed prior to 1 September 2017. I agree with this, as s 473 of the Act applied to liquidators who had been appointed by the Court or in a winding up in insolvency, and not to liquidators appointed in a voluntary winding up. As I understand it, the latter applications for approval of remuneration were usually made pursuant to what was then s 511 of the Act, although the criteria in s 473(10) of the Act were usually applied by the Court when considering those applications. Since s 511 of the Act was repealed with the same suite of reforms, it is the Practice Schedule (ss 90-15 and 90-20, and Division 60) which applies. It was also common ground that regardless of which applies, the Court's approach would be the same.

28 For the purposes of the Practice Schedule, an external administrator is defined as an administrator, an administrator under a deed of company arrangement, a liquidator, or a provisional liquidator, of the company.[23] A company is taken to be under external administration for the purposes of the Practice Schedule on the occurrence of certain events, being under administration, a deed of company arrangement has been entered into, a liquidator has been appointed, or a provisional liquidator has been appointed.[24]

29 Section 90-15 of the Practice Schedule relevantly provides as follows:

Court may make orders

(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application

(2) The Court may exercise the power under subsection (1):

(a) on its own initiative, during proceedings before the Court; or

(b) on application under section 90-20.

Examples of orders that may be made

(3) Without limiting subsection (1), those orders may include any one or more of the following:

(a) an order determining any question arising in the external administration of the company;

(d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;

(f) an order in relation remuneration, including an order requiring a person to repay to a company or the creditors of a company, remuneration paid to the person as external administrator of the company.

Matters that may be taken into account

(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and

(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and

(c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and

(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and

(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

Costs orders

(5) Without limiting subsection (1), an order mentioned in paragraph 3(d) in relation to the costs of an action may include an order that:

(a) the external administrator or another person is personally liable for some or all of those costs; and

(b) the external administrator or another person is not entitled to be reimbursed by the company or its creditors in relation to some or all of those costs.

30 Section 90-20 of the Practice Schedule relevantly provides that a person with a financial interest in the external administration of the Company or an officer of the Company may apply for an order under s 60-15 of the Practice Schedule.

Sections 60-10 and 60-12 of the Practice Schedule

31 Section 60-10 of the Practice Schedule applies to this application, and it relevantly provides as follows:

60-10 Remuneration determinations

(1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made:

(a) by resolution of the creditors; or

(b) if there is a committee of inspection and a determination is not made under paragraph (a) - by the committee of inspection; or

(c) if a determination is not made under paragraph (a) or (b) - by the Court.

(2) [External administrator in a members' voluntary winding up] A determination, specifying remuneration that an external administrator of a company in a members' voluntary winding up is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made:

(a) by resolution of the company at a general meeting; or

(b) if a determination is not made under paragraph (a) - by the Court.

...

(3) [Amount of remuneration] A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways:

(a) by specifying an amount of remuneration;

(b) by specifying a method for working out an amount of remuneration.

32 As noted above, it is not explicitly stated in the materials whether the liquidation of the Company was commenced as a members' voluntary winding up. On the materials, it appears to me that the liquidation commenced in that manner but that it then continued as a creditors' voluntary winding up, as a meeting of creditors was convened shortly thereafter by the Liquidator, possibly pursuant to s 496(1)(c) of the Act, such that s 496(8) applies.

33 Therefore, it appears that s 60-10(2)(b) applies. Even if it is s 60-10(1)(c) which applies, the task before the Court is the same.

34 In exercising the power to determine the Liquidator's remuneration, s 60-12 of the Practice Schedule states that the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:

(a) the extent to which the work by the external administrator was necessary and properly performed;

(b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;

(c) the period during which the work was, or is likely to be, performed by the external administrator;

(d) the quality of the work performed, or likely to be performed, by the external administrator;

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;

(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;

(g) the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;

(h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;

(i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;

(j) if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work;

(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;

(l) if:

(i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and

(ii) the matter is, or includes, remuneration of the external administrator;

the contents of the report on the review that relate to that matter;

35 While the criteria in s 60-12 of the Practice Schedule direct the Court to the factors that are to be taken into account, the ultimate question is whether the remuneration claimed by the Liquidator is reasonable.

The Court's approach when considering applications for approval of an external administrator's remuneration

36 The principles concerning applications for approval of the remuneration incurred by insolvency practitioners are well established and have been referred to in many decisions of this Court. These principles were developed when the previous statutory provisions applied, as I have set out above. There was no disagreement between the parties as to the applicable principles.

37 The factors contained in s 60-12 of the Practice Schedule are materially the same as the factors which were set out in s 473(10) of the Act.[25]

38 As the relevant provisions are relatively new, and as the factors to be taken into account are materially the same, the earlier authorities remain pertinent.

39 Gardiner AsJ summarised the relevant principles in IMO Traditional Values Management Limited (in liq)[26] ('Traditional Values') at paragraphs [18] to [25].

40 For convenience I adopt his Honour's summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[27]

At [60], her Honour summarised the principles to be applied by reference to the decision of the Full Court of the West Australian Supreme Court in Venetian Nominees v Conlan as follows:

(a) A summary procedure was involved, not unlike that applicable to the taxation of solicitor's costs, which is not necessarily subject to all the rules that would apply in an action.

(b) The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment 'bringing an independent mind to bear on the relevant issues' even though at that point there is no objector.

(c) There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.

(d) If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made.

(e) If there are objectors to the claim or any part, the Court should then establish the validity of those objections.

At [63] and [64] of Thackray, her Honour stated:

.... the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers. The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work and justification of the hours spent. That amount can then be adjusted up or down to reflect other factors including:

(a) complexity above the norm for the kind of work involved;

(b) novelty and difficulty of the issues faced;

(c) the ultimate outcome obtained by the claimant.

The Court is looking for evidence of overcharging. Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided. But there is no universal approach applicable in all circumstances by which the "reasonableness" of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[28]

41 Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited.[29] In addition to the matters referred to above, his Honour stated the following propositions:

[T]he Court will generally need to be provided with an account in itemised form, setting out at least the details of the work done; the persons who did the work; the time taken to perform the work; the remuneration claimed; and, to the extent relevant, the expenses incurred.[30]

Proportionality is an important matter in considering the question of whether remuneration is reasonable, and the 'value' of a liquidator's work can include the benefit of resolving the position of creditors and beneficiaries; the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and can include work that was required to be done, although it did not result in a return to creditors.[31]

42 His Honour also canvassed a number of authorities regarding the method for calculating the remuneration, such as time costing or remuneration based on a percentage of realisations, concluding that:[32]

Most decisions ... have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the costs of the work done and the value of the services provided.

43 On this point, his Honour concluded by referring to the New South Wales Court of Appeal decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr[33] which he said did not prefer any particular approach over another. Black J then stated:

Whether time-based remuneration or a percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator puts his or her application for remuneration; and, in part, the view taken by the Court.[34]

44 The Liquidator has been a registered liquidator and official liquidator since 21 March 2009 and a registered trustee since December 2013. He has been a partner of Jirsch Sutherland since May 2011. He has had over 24 years insolvency experience, and is regularly appointed as a liquidator, receiver and manager, voluntary administrator, deed administrator and trustee in bankruptcy.[35]

45 The Liquidator deposes that he and his staff undertook the following tasks ('Liquidation Tasks'):[36]

(a) Trading on the business and effecting a commercial sale of the business for the commercial benefit of creditors;

(b) Reviewing Company books and records;

(c) Conducting statutory searches and attending to lodgement of the requisite notices with statutory and regulatory bodies such as ASIC and the ATO;

(d) Attending to enquiries from creditors;

(e) Preparing for and attending the first meeting of creditors on 30 May 2016 ('First Creditors Meeting') and the Second Creditors Meeting, including preparation of notices, reports to creditors (including remuneration reports) and meeting packages;

(f) Attending to general correspondence regarding the liquidation of the Company;

(g) Filing documents and updating checklists;

(h) Reviewing asset searches;

(i) Considering the reasons for the Company's financial position and reviewing information relating to whether it was insolvent; and

(j) Conducting discussions regarding the progress of the liquidation.

46 The Liquidator also deposes that additional work was undertaken during the liquidation which contributed to the increase in the remuneration claimed ('Additional Liquidation Tasks'), which were:[37]

(a) Liaising with suppliers, management and staff;

(b) Maintaining sales register and entering receipts and payments into MYOB;

(c) Preparing financial reports;

(d) Conducting meetings to discuss trade position;

(e) Advertising and negotiating the sale of the Business; and

(f) Preparing an information memorandum for purchasers of the Business.

47 In the Second Howell Affidavit, the Liquidator goes into substantial more detail to explain the work done in the liquidation of the Company, including when that work was undertaken. He says that:

(a) In the immediate aftermath of his appointment, he and his staff:[38]

(i) Contacted and commenced discussions with the Pre-Appointment Purchaser;

(ii) Did not prepare a financial information memorandum in relation to the Business for provision to potential purchasers because the Pre‑Appointment Purchaser had been referred to him by the Defendant;

(iii) Put together and ran an advertising campaign for the Business;

(iv) Commissioned a valuation of the assets;

(v) Performed a stocktake;

(vi) Arranged insurance;

(vii) Negotiated wages for continuing staff;

(viii) Commissioned occupational health and safety assessments; and

(ix) Set up new bank and utility accounts.

(b) The objective at this time was to trade the business as efficiently and minimally as possible while it was in the process of being sold. The Liquidator employed the Defendant and one other existing employee to manage the 'front-end' of the business, including dealing with customers and placing orders;[39]

(c) Investigated and dealt with a filled but unpaid order which the Company had placed with an overseas supplier prior to the Liquidator's appointment. In this regard:[40]

(i) The cost of the order was approximately $53,000, had been fulfilled by the supplier and was awaiting shipment, but the Company had not yet paid for it;

(ii) As the order was complete, the Company was liable under its supply agreement to pay for the stock, which would not be released unless and until full payment was made. If the stock was not paid for, the supplier would be a creditor of the Company but the Company would not have the benefit of the stock purchased;

(iii) The Liquidator and his staff held discussions with the Defendant to assess the viability of paying for the shipment, which necessitated he and his staff ascertaining whether the Business had sufficient cashflow to fund payment, and comparing the likely return to creditors if the Company paid for the shipment and sought to sell the acquired stock with the Business or if the stock was not paid for and the supplier proved in the liquidation for the value of the stock;

(iv) The Liquidator formed the view that payment for the goods could be funded from sale proceeds, including debtor collection, and that it was in the best interests of creditors for the Company to pay for the order and acquire the stock. To do so, it was necessary to trade the business for about a month, which the Liquidator and his staff did.

(d) During the liquidation, particularly while selling the Business, Mr Michau regularly corresponded with him and his staff. The Liquidator says that Mr Michau was opposed to the liquidation and threatened to sue him, asserted that he and his staff had no right to be on the premises, and asserted that he had no right to sell or otherwise deal with the Business.[41]

48 The Liquidator also explains what happened with the sale of the Business. He says that:[42]

(a) He and his staff continued to liaise with the Pre-Appointment Purchaser, meeting him on the premises and having a number of telephone calls with him;

(b) Three other interested parties responded to the advertisements for the sale of the Business, and he and his staff corresponded with them;

(c) On 18 May 2016, the Pre-Appointment Purchaser told the Defendant that he would not proceed with the purchase of the Business as he had purchased a property and lacked the funds to proceed;

(d) It was then necessary to re-consider the strategic course adopted in the liquidation. He considered ceasing to trade the Business and to commence winding up the Company, in particular as he was concerned that the costs of continuing to trade (especially his remuneration) could become disproportionate to the value of the Business, particularly where there was at the time no clear or obvious buyer;

(e) He told the Defendant that the best strategy would be for her to go to the market to try and find interested purchasers while he and his staff sought to fulfil orders and sell the recently acquired stock. The Defendant agreed to this;

(f) The Defendant was unable to find a purchaser for the Business;

(g) The Liquidator sold most of the stock delivered post-appointment along with a substantial amount of surplus plant and equipment. His staff members attended the premises every few days to collect hard copy records to reconcile accounts and prepare financials;

(h) The Defendant then started to find a new tenant for the premises. The Liquidator decided to start to wind down the Business, which he proceeded to do, including selling further equipment used by the Business;

(i) The Defendant was unable to find a new tenant and told him she wanted to sell the property;

(j) At around that time, one of the interested parties who had responded to the advertising campaign run by the Liquidator and who had corresponded with the Liquidator and his staff made an offer to purchase the Business. The Liquidator accepted that offer;

(k) Following acceptance of the offer, the Liquidator and his staff turned their attention to completing the sale, attending to outstanding items such as paying trade creditors and employees, and preparing financial and taxation returns. The sale of the Business was completed on 17 August 2016, by which time the Liquidator had traded the Business for 14 weeks following his appointment;

(l) After the sale, the Liquidator continued to employ the Defendant to collect outstanding pre-appointment trade debtors and to continue to process and collect sales post-appointment. He terminated the Defendant's employment on 28 October 2016.

49 The Liquidator deposes that after the First Proposed Resolution was not passed at the Second Creditors Meeting and after further discussions between he and the Defendant, he prepared a short comparative table setting out what he expected the distribution to creditors would have been if he had proceeded immediately to an auction of the Company's assets, compared to if he had traded on the Business.[43] This table ('Outcome Comparison Table')[44] shows the realisations, liquidator fees and disbursements, general expenses (such as legals, commissions on sale of assets, wages, trading expenses, rent), unsecured creditors, funds available to pay unsecured creditors, deficiency to unsecured creditors, estimated dividend to unsecured creditors, and the estimated dividend to the Defendant under both scenarios. Taking the most pertinent aspects of this table:

Expected realisations (cash at appointment, stock/plant & equipment, pre-appointment debtors, sale of Business, trading sales, interest income)

Estimated dividend to unsecured creditor (cents in the dollar)

The Liquidator's rates and method for calculating remuneration

50 The Liquidator deposes that he calculated his remuneration on a time cost basis in accordance with Jirsch Sutherland's national rates, in accordance with the procedures detailed by the Australian Restructuring Insolvency and Turnaround Association. Each staff member employed by Jirsch Sutherland who worked on the file under the Liquidator's direction recorded details of the time expended on the tasks in the liquidation of the Company in an electronic system known as CORE IPS.[45] The spreadsheets produced by such programs are usually referred to as 'work in progress reports', detailing for each task the person performing it, their classification, their hourly rate, the time spent on the task, the fees associated with the task, and a brief narration describing the task ('WIP Report').

51 The papers for the First Creditors Meeting included a remuneration report dated 16 May 2016 ('First Remuneration Report').[46] In that report, the Liquidator stated that he would calculate his remuneration on the time cost basis. He provided a copy of the Jirsch Sutherland schedule of fees and disbursements effective 1 August 2015 which he stated would be applicable to the liquidation ('2015 Rates Schedule').

53 No such similar schedule appears to have been provided with subsequent remuneration reports or with this application, although it is clear from the materials that the rates increased over time. For example, the Partner rate appears to have increased to $615 per hour in about August 2016 and to $645 per hour in about August 2017, with increases at most of the other levels as well.[47] I note that the resolution proposed for the First Creditors Meeting, as set out in the First Remuneration Report, said that the Jirsch Sutherland rates may be increased at a rate of up to 5% at 1 August each year, rounded up to the nearest $5.[48]

54 The First Remuneration Report attached two schedules:

(a) Estimate of hours/amounts likely to be charged by staff members by task category. The task categories are Assets, Creditors, Employees, Trade On, Investigations and Administration ('Task Categories') ('Schedule 1 of the First Remuneration Report'); and

(b) Estimate of work by Task Category. This contains a general description and specific tasks for each Task Category, along with the total hours and cost for each Task Category ('Schedule 2 of the First Remuneration Report').

55 The papers for the Second Creditors' Meeting included a remuneration report dated 12 January 2017 ('Second Remuneration Report'). In that report, the Liquidator noted that $20,000 in remuneration had already been approved and paid. He attached three schedules:

(a) Summary of hours/amounts charged by staff members by Task Category for the First Period ('Schedule 1 of the Second Remuneration Report');

(b) Summary of work for the First Period, by Task Category. This contains a general description and specific tasks for each Task Category, along with the total hours and cost for each Task Category ('Schedule 2 of the Second Remuneration Report'); and

(c) Summary of work to be undertaken for the period from 11 January 2017 to completion, in the same format as Schedule 2 ('Schedule 3 of the Second Remuneration Report').

56 The Second Remuneration Report noted that the outstanding WIP for the First Period was $108,209.50,[49] but the Liquidator was seeking approval for $80,000 only (both plus GST).

57 In the First Howell Affidavit, the Liquidator says that during the liquidation, he and his staff expended 392.30 hours on the liquidation, resulting in WIP in the amount of $128,209.50. He then exhibits what he says is a WIP Report for the liquidation as Exhibit MKH-7. However, that exhibit is a WIP Report for the period 11 January 2017 to 25 August 2017, that is, the Second Period, showing an amount of $26,127, that is, the Second Period Remuneration. For convenience, I will refer to this document as the Second Period WIP Report. There is no WIP Report for the First Period exhibited to the First Howell Affidavit.

58 The Defendant exhibits a WIP Report for the First Period, which she says was provided to her by Travis Marchionne of Jirsch Sutherland.[50] I note that this report records the total hours as 403.9 and the total cost as $132,050.50, and for convenience I will refer to this document as the First Period WIP Report. I cannot reconcile this with the hours and cost referred to in the preceding paragraph.

59 With the Fourth Howell Affidavit, the Liquidator exhibits a WIP Report for the entire period from 12 May 2016 to 8 April 2019. This report records the total hours as 525.7 and the total cost is recorded as $178,253, and for convenience I will refer to this document as the Total WIP Report. After deducting the $20,000 already approved and paid, this means that the total outstanding WIP to 8 April 2019 is $158,253. Of this, the Liquidator seeks approval for the amounts already mentioned in paragraph 7 above, but it is convenient to set it out again here:

(a) $80,000 for the First Period;

(b) $26,127 for the Second Period; and

(c) $15,000 for the Third Period.

60 This gives a total amount claimed of $121,127, meaning that there is $37,126 worth of fees for which the Liquidator is not seeking approval. Adding back in the $20,000 already approved and paid, this means that the Liquidator's remuneration for this liquidation would, if the current application was granted in full, be $141,127 plus GST.

61 The Liquidator states that in his opinion, the remuneration claimed is reasonable, having regard to the tasks performed which he says were reasonably necessary.[51]

62 Apart from the matters already referred to above, the Defendant's evidence is primarily directed to her observations about the remuneration claimed, the work performed, and her objections. I will not set this out in detail here, as it is more convenient to do so when considering the particular challenges made by the Defendant to the claimed remuneration.

63 It is convenient to first deal with the submissions made by the parties in general terms. Submissions were made in relation to specific issues: it is more convenient to deal with those and set out my views, issue by issue, which I will do in the next section.

64 In general terms, the Liquidator submits that although the remuneration for which approval is sought is substantially higher than the remuneration initially estimated to creditors, that is plainly explicable from the circumstances. The Liquidator says that the initial estimate was based upon a sale of the Business that the Defendant had arranged, that sale fell through, and the Liquidator made a considered decision to proceed with the pre-ordered stock and to trade on the Business, prior to then selling it to a different purchaser. The Liquidator says that the initial estimate was just that, an estimate, and not a cap or a fixed amount.

(a) The work done was necessary and properly performed;

(b) It was performed by appropriate members of his staff;

(c) It was proportionate to the issues that required attention in the liquidation; and

(d) He has performed his duties faithfully and the fees are fair and reasonable.

66 The Defendant submits that the Liquidator agreed to undertake the liquidation for $20,000. She disputes that this was only an estimate, but says that even if it was an estimate, she was not warned that the remuneration would exceed $20,000. She also disputes that much of the work was necessary or that it was performed by appropriate members of staff. The Defendant says that the amount claimed by the Liquidator is unreasonable, and sets out various reasons why this is said to be the case. I will deal with these below.

67 The Defendant also submits that the Liquidator's evidence is inadequate and difficult to reconcile, referring to the First Period WIP Report and the Second Period WIP Report.

68 The Michau Objection objected to the claimed remuneration on the following bases:[52]

(a) The fees exceed the amount that was the quoted fee for attending to the liquidation;

(b) The fees are excessive;

(c) The fees are unwarranted;

(d) The fees lack proportionality;

(e) There has been no explanation of why the work performed was necessary;

(f) The fees are not warranted by the size and complexity of the external administration;

(g) The fees were not warranted by the value and nature of the property dealt with;

(h) The fees were not warranted by the level of risk or responsibility with the matter;

(i) There were no extraordinary issues that were required to be dealt with;

(j) The fees claimed are far in excess of the amount of fees that have previously been approved; and

(k) The time expended by the Liquidator was excessive and the staff member utilised was not appropriate and over-qualified in the circumstances.

69 In the Second Howell Affidavit, the Liquidator responds to these objections. I will deal with these below.

70 I will first deal with whether the Liquidator has established a prima facie case for approval of his remuneration. I will then deal with the Defendant's objections and the Liquidator's response, grouping them appropriately according to the issues which they raise. Following that, I will set out some further matters requiring consideration.

71 Based on all of the evidence provided, I am satisfied that the Liquidator has made out a prima facie case for approval of his remuneration, within the meaning referred to in paragraph 40 above. That is, the Liquidator has made out a prima facie case that he is entitled to remuneration and that there is sufficient information to allow the Court to assess what is a fair and reasonable amount and to enable potential objectors to review the amounts claimed and to ascertain whether there are matters to which objection should be taken.

72 It is important to note that this is a threshold point only. After the threshold has been reached, the Court must consider the detail and the objections, and then arrive at its assessment of what is a fair and reasonable amount of remuneration for the particular liquidation. The threshold question is based more on the type of evidence relied on by the Liquidator: whether there is a sufficient description of the work performed and explanation of why it was necessary; and if the method of calculating the remuneration is time cost based, then whether there is sufficient detail of the time spent on each task and the cost of it.

73 From my experience in matters associated with insolvency administrations, I know the hourly rates specified by the Liquidator to be commensurate with the hourly rates typically charged by insolvency practitioners.

74 This covers the elements of the Michau Objection described in paragraphs 68(a) and (b) above, that the fees exceed the amount that was the quoted fee and they are far in excess of the fees that have been previously approved.

75 As is apparent from paragraphs 18 and 19 above, there is disagreement between the parties as to whether the fees to be charged for the liquidation were to be capped at $20,000 or whether this was merely an estimate.

76 The Defendant says that at the Initial Meeting, the Liquidator agreed to carry out the liquidation and that his fees were to be capped at $20,000. The Defendant also says that this amount was not qualified in any way.[53]

77 The Defendant says that she was not told the fees would exceed $20,000 or given any information after the sale to the Pre-Appointment Purchaser fell through about the likely fees for the Liquidator to continue trading on the Business, until she received the Second Remuneration Report.[54]

78 The Defendant also appears to say that even if this was an estimate, there has been no proper explanation as to why the amount sought in the Second Remuneration Report was so much higher.

79 In this regard, the Defendant points to the following in relation to Schedule 2 to each of the First and Second Remuneration Reports:

(a) The fees sought by the Liquidator have increased across all of the Task Categories, not just Trade On, notwithstanding that most of the tasks were anticipated by him at the outset of the appointment and should not have increased significantly;[55]

(b) The Liquidator relies on the Additional Liquidation Tasks relating to the sale and trading on of the Business as reasons why the remuneration increased. However, some of these tasks were included in Schedule 2 of the First Remuneration Report, and ought to have been anticipated by the Plaintiff having regard to the information available to him at the Initial Meeting;[56]

(c) The tasks for each Task Category in Schedule 2 of the Second Remuneration Report are identical to Schedule 2 of the First Remuneration Report, save that:[57]

(i) For Assets, the general description for that Task Category now included 'sale of real property'. The estimate for this Task Category was updated from 11.5 hours at a cost of $4,020, to 55.2 hours at a cost of $20,036;

(ii) For Creditors, the specific tasks now included 'reports pursuant to section 436E and 439A of the Corporations Act'. The estimate for this Task Category was updated from 8.5 hours at a cost of $3,075, to 16.6 hours at a cost of $5,769;

(iii) For Employees, the estimate was updated from 1.5 hours at a cost of $600, to 1 hour at a cost of $388;

(iv) For Trade On, the specific tasks now included 'authorising purchase orders', 'maintaining purchase order registry', liaising with OSR in relation to payroll tax', 'reviewing the Company's budgets and financial statements', 'preparing budgets for trade on period', 'preparing weekly financial reports', 'finalising trading profit or loss', and meetings to discuss trading position'. The estimate for this Task Category was updated from 8.8 hours at a cost of $2,987.50 to 155.6 hours at a cost of $47,397;

(v) For Investigation, there were no new specific tasks but the estimate was updated from 15 hours at a cost of $5,105, to 58.6 hours at a cost of $18,934.60; and

(vi) For Administration, there was one new specific task added of 'completing PAYG certificates for former staff' but the estimate was updated from 16.5 hours at a cost of $4,212.50, to 105 hours at a cost of $35,685.

80 The Defendant also submits that to exceed the quoted cap (on the Defendant's case) or the estimate (on the Liquidator's case) of $20,000 without revising that at any stage, such that the ultimate claim is over seven times that amount, is unreasonable.

81 The Liquidator says that the figure of $20,000 was an estimate only and that he told the Defendant this. He also deposes that his estimate was based on the facts as communicated to him by the Defendant at the Initial Meeting, in particular, that she already had a purchaser for the Business.[58]

82 The Liquidator also deposes that his estimate of $20,000 was based on the following assumptions:[59]

(a) He would trade the Business for a short time while the sale was completed;

(b) He would complete the sale of the Business to the Pre-Appointment Purchaser; and

(c) He would not be required to deal with any extraordinary matters.

83 The Liquidator then deposes that contrary to those assumptions:[60]

(a) He traded on the Business for approximately 14 weeks, far in excess of what was contemplated;

(b) The sale of the Business to the Pre-Appointment Purchaser fell through, and he was required to continue to trade the Business while trying to find an alternate buyer; and

(c) He was required to deal with the matter of the pre-appointment purchase of stock.[61]

84 The Liquidator deposes that he told the Defendant that trading the Business would be expensive. He further deposes that at no stage did the Defendant support any course that involved ceasing to trade the Business or to wind down the Company's affairs. She was in touch with the Liquidator's staff on a daily basis and never expressed a concern with the Business continuing to trade until it was sold or until she found an alternate tenant for the premises.[62] The Liquidator also says that he was careful to make sure that he told the Defendant that his estimate of $20,000 was based on the facts as she had told him, that is, that a sale had already been arranged, and if those facts changed the costs would change.[63]

85 The Liquidator's primary submission is that trading on the Business for a much longer period than originally anticipated (the Business ended up trading on for some 14 weeks) is the main reason for the fees greatly exceeding the initial estimate.

86 The disagreement between the parties as to whether the fees were to be capped at $20,000 or whether this was merely an estimate starts with their disagreement as to what occurred at the Initial Meeting.[64]

87 The Liquidator does not mention Mr Hodgson being present at the Initial Meeting, although the Defendant says that he was.[65] This is not contradicted by the Liquidator in the Third Howell Affidavit, which was made in reply to the Michau Affidavit. In terms of an argument before me as to whether there was an agreement reached at that meeting to cap fees at $20,000, it is somewhat surprising to note that neither party called Mr Hodgson to give evidence. This was not something mentioned during the course of submissions.

88 In the notice for the First Creditors Meeting,[66] one of the purposes for the meeting was stated to be to:

Approve the remuneration of the Liquidator to a capped amount of $20,000.00, excluding GST, beyond which further approval must be sought from creditors or the Court, such amount calculated and to be calculated on a time cost basis using hourly rates adopted by Jirsch Sutherland, and that such remuneration be paid as and when incurred.

89 In the First Remuneration Report, the Liquidator stated that he estimated the fees for the liquidation would be approximately $20,000 (excluding GST). He also stated that there were a number of unknown variables which may have a significant effect on this estimate, including (but not limited to) the matters set out below. He said that he would keep creditors advised of his fees in future reports to creditors:[67]

(a) Unexpected creditor claims;

(b) Issues and/or disputes with statutory creditors;

(c) Undisclosed assets and the realisation of same;

(d) Difficulties in securing books and records;

(e) Pre-appointment transfers of assets/business; and

(f) Disputes and litigation.

90 In the First Remuneration Report, the resolution proposed for the First Creditors Meeting in respect of the Liquidator's remuneration was substantially in the same terms as the purpose referred to in paragraph 88 above.

91 The Liquidator stated in the First Remuneration Report that he did:

not expect, on present indications, to make a further claim for remuneration in relation to this liquidation in addition to the approval sought herein.

Any future remuneration sought is subject to a capped amount which represents my indicative estimate of the highest level of remuneration to be charged to the liquidation for the particular period identified. This cap has been calculated based on the supporting schedules provided setting out time to be charged to the liquidation by staff members and task/work category.

However, in the event my future remuneration within the liquidation exceeds the estimated amount I anticipate will be approved by creditors at the forthcoming meeting; I may subsequently seek approval of this additional remuneration from creditors or the Courts. At that time I will provide creditors with a further Remuneration Report in regards to the additional work undertaken.

92 In my view, the evidence as to whether the parties agreed at the Initial Meeting that the fees for the liquidation were to be capped at $20,000 is inconclusive. Even if it was a cap rather than an estimate, the evidence as to whether it was agreed at the Initial Meeting that the cap could be exceeded and, if so, how that was to occur, is also inconclusive.

93 Nonetheless, it ought to have been apparent from the papers for the First Creditors Meeting, including the First Remuneration Report, that the amount of $20,000 was an estimate based on information known to the Liquidator at the time, that it may be affected by other variables, that it had been arrived at on the basis of the material set out in Schedules 1 and 2 to the First Remuneration Report, and that it was a cap but this cap could be exceeded provided that additional amounts were approved by creditors or the Court. Therefore, the Defendant ought to have known within a short time after the Initial Meeting that the remuneration may exceed $20,000.

94 If I was required to make a finding as to whether an agreement had been reached at the Initial Meeting that the fees would be capped, in the sense of being fixed, at $20,000, then on the balance of probabilities I do not consider there to have been such an agreement reached. A fixed fee is inconsistent with the almost contemporaneous material in the form of the First Remuneration Report and other papers as described in the previous paragraph, and there is no evidence of the defendant having disputed it at that time.

95 As noted above, the Defendant complains that she was not informed that the remuneration had exceeded $20,000 until she received the Second Remuneration Report. Apart from what appears to be attempts by the Liquidator to say why it would have been obvious to the Defendant that the remuneration would exceed that amount, there is no evidence to suggest that the Defendant was actually informed until the Second Remuneration Report of that or the amount by which the remuneration exceeded $20,000.

96 Some may see this as poor stakeholder management and poor communication by the Liquidator. However, that does not mean that remuneration which is more than $20,000 is not reasonable or should not be approved by the Court. I accept that trading on the Business for a longer period than anticipated would have a significant effect on the Liquidator's fees.

97 The Defendant's complaint about the adequacy of the estimate provided in the First Remuneration Report, as summarised in paragraphs 78 and 79 above, is well made. The 'unknown variables' referred to in the First Remuneration Report seem to me to be drawn from a template rather than specifically tailored to this liquidation, and do not refer to matters such as the period of time anticipated for the Liquidator trading on the Business or selling it to the Pre-Appointment Purchaser. It also seems to me that the assumptions for the $20,000 estimate deposed to by the Liquidator were not necessarily communicated to the defendant.

98 However, this does not lead to a conclusion that remuneration beyond $20,000 is unreasonable or ought not be approved by the Court. It does mean that particular scrutiny needs to be applied to the amounts claimed, particularly given the comparison between Schedule 2 to the First and Second Remuneration Reports and there being few descriptive changes to justify the vast increase in the hours and cost for some of the Task Categories. As I set out later in this decision, this has been done by closely reviewing the Total WIP Report as well as the other materials. The task I am required to carry out is not to determine whether the amount claimed is justified by reference to the estimate, but by reference to the work performed.

Objection - the fees are not proportional to the liquidation

99 This covers the elements of the Michau Objection described in paragraphs 68(d), (f) and (g) above, that the fees lack proportionality, are not warranted by the size and complexity of the liquidation, and are not warranted by the value and nature of the property dealt with.

100 The Defendant submits that proportionality is important. She submits that spending $141,127 in fees to recover $319,555.17, mainly from sales, is not proportionate.

101 It was not explained to me where the figure of $319,555.17 comes from. From the Outcome Comparison Table, the expected realisations from trading on the Business and selling it were $338,980.

102 Taking the figures in the Outcomes Comparison Table, the Defendant says that the better outcome to her as a result of trading on the Business rather than immediately auctioning the assets is premised on the total fees of the Liquidator being $102,669. She observes that the Liquidator has claimed fees in excess of $140,000, including the $20,000 already paid.[68]

103 In response to this group of objections, the Liquidator says that following the collapse of the sale to the Pre-Appointment Purchaser, he was continually mindful of the cost of continuing to trade the business, particularly relative to the size of the Business.[69] He says that a number of factors influenced his decision to continue to trade the Business and incur the costs of doing so:[70]

(a) His forecasts demonstrated that the Business could be traded profitably and was in fact traded profitably at all times by him;

(b) Continuing to trade the Business enhanced the prospects of a successful sale, as well as the prospect of successfully collecting pre-appointment debtors;

(c) The Defendant wanted the Business to continue to trade. She was by far the largest creditor in the liquidation and she was also the sole shareholder. He put emphasis on her views;

(d) His forecasts demonstrated that continuing to trade the Business would lead to a better outcome for the Defendant and other creditors than ceasing to trade and selling the Business by auction. In particular, he was able to sell almost all of the stock purchased pre-appointment;

(e) At all times the Company continued to pay rent to the Defendant's SMSF.

104 The Liquidator also says that his decision to trade the Business until it was sold resulted in a better return to the Defendant and other creditors than would have been achieved if he had ceased trading and sold it by auction. He says that the Outcome Comparison Table demonstrates this.[71]

105 The Liquidator deposes that he considered, and continues to consider, the remuneration claimed is proportionate to the size, complexity and outcome of the liquidation.[72]

106 I accept that trading on the business of a company in liquidation is usually more complex than realising assets of a non-trading company and distributing any dividend to creditors.

107 In my view, the task before me is not as simple as comparing the costs of the liquidation with the amount recovered for creditors and members. That is not what proportionality means. The services performed may have value, even if they do not ultimately result in a significant return to creditors and members.

108 Similarly, it is also too simplistic to view the remuneration claimed by a comparison with the assets realised by a liquidator or by the return to creditors. It is the case that the 'question of proportionality is a well-recognised factor in considering the question of reasonableness' and the factors in s 473(10) of the Act have 'as their unifying theme the concept of proportionality'.[73] But what is required is that 'the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed ... that is what is encompassed in assessing the value of the services rendered.'[74] In Sanderson, the five member bench of the New South Wales Court of Appeal then went on to add two matters:

the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it.[75]

...

there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work.[76]

109 Therefore, a liquidator is entitled to be remunerated for work required to be carried out even though it will not augment funds available to creditors (for example, the need to comply with statutory obligations). A liquidator who acts reasonably in pursuing recoveries is entitled to be remunerated for his or her work in connection with that, even though the liquidator may ultimately fail in making any recoveries.

110 Here, trading on the Business of the Company has resulted in a greater fund available for distribution to creditors than an auction of assets at the outset would have done. That is the Liquidator's evidence and I have no basis for not accepting it. On the figures set out in the Outcome Comparison Table, the return to unsecured creditors from trading on is almost double that of an immediate auction of assets. True it is that the Liquidator's claimed fees are now higher than those set out in the Outcome Comparison Table, but that does not mean that the outcome for creditors was not enhanced by the work undertaken by the Liquidator. I will separately consider whether the amount claimed is reasonable (for example, whether an additional $40,000 or so in fees since the estimate used in the Outcome Comparison Table in around May 2017 is justified), but as a matter of principle, it seems clear to me that trading on the Business was to the benefit of creditors.

Objection - there was no unusual risk or responsibility involved or extraordinary issues to be dealt with

111 This covers the elements of the Michau Objection described in paragraphs 68(h) and (i) above, that the fees are not warranted by the level of risk or responsibility involved and there were no extraordinary issues required to be dealt with.

112 The Liquidator deposes that the continued trading of the Business involved a fair degree of risk and responsibility, and that it was necessary to constantly monitor the cash flow of the Business to ensure it could be traded profitably. He says that his decision of whether to pay for the stock purchased pre-appointment was an extraordinary issue that required significant consideration and analysis.[77]

113 The Liquidator also deposes that throughout the liquidation, Mr Michau was threatening to sue him and asserting that he and his staff were not entitled to be on the premises or to deal with the Business. He says that this was complicated by Mr Michau still being involved with and interested in the SMSF which owned the premises.[78] The Liquidator says that during the liquidation, Mr Michau made various requests of him to provide him with documents in the possession of the Company, and that Mr Michau had made direct contact with the purchaser and suppliers of the Business.[79] According to the Liquidator, the threat of litigation by Mr Michau compelled careful consideration of the decisions made in the liquidation and caused him to engage a lawyer to correspond with Mr Michau's lawyers on a number of occasions, including to require him to desist from contacting the purchaser and the suppliers.[80]

114 The defendant says that the issue of the stock purchased pre-appointment was not an extraordinary one and did not involve a high level of risk, as she had advised the Liquidator that around 90% of that stock had been pre-sold to customers of the Business.

115 The defendant also says that very little time or attention ought to have been paid to vague threats made by Mr Michau. She says that he had no standing to make any claims against the Liquidator and those threats did not warrant special consideration.

116 I accept the Liquidator's view that trading on the Business involved a greater degree of risk and responsibility on his part. Indeed, it is difficult to see how that could not be the case. There is a considerable difference in the tasks required of a liquidator when trading on a business than when simply realising and distributing assets. The Company is continuing to incur debts, and the risks associated with such matters obviously lead to careful and close scrutiny of the Company's financial position and cash flow being required, so that the Liquidator can be confident that the costs and liabilities incurred while trading on are capable of being met from the trading undertaken by the Business.

117 I also accept the Liquidator's position in respect of the payment for the purchase of the pre-appointment stock. While that risk may have been somewhat ameliorated by the defendant's assurances as to 90% of it being pre-sold, the Liquidator was still taking a risk with making the payment, in terms of being able to recoup it through sales. True it was that it was a calculated risk, but the analysis undertaken to determine whether to go ahead with it or not still had to be done.

118 I do not accept the defendant's position in relation to the threats made by Mr Michau. This is particularly so in a context where Mr Michau had, until relatively recently prior to the Liquidator's appointment, been intimately involved with the Business and where he maintained his interest in the SMSF. It was reasonably necessary for the Liquidator to deal with Mr Michau and I agree with the Liquidator that there was an element of risk associated with those dealings.

Objection - the time spent by the Liquidator was excessive and the staff member utilised was not appropriate and over-qualified

119 This covers the elements of the Michau Objection described in paragraph 68(k) above.

120 The defendant says that a large portion of the administrative work was conducted by staff who were overqualified for completing those tasks and that the 'WIP Report shows that Amanda Di Michele completed by Administrative Assistants in the employ of the Plaintiff'.[81] Apart from this part which I have directly quoted and which I cannot make sense of, the defendant does not elaborate on this aspect of this objection or give examples.

121 The defendant also objects that various attendances were made at the premises of the Business by Ms Di Michele, simply to pick up one or two invoices. She says that these invoices could have been quite easily emailed and did not require attendance.

122 In written submissions, the defendant's counsel said that there was no complaint that the Liquidator himself devoted too much time to the liquidation, only that he allowed his staff to charge for work that was unnecessary, or alternatively work that was performed by persons at charge out rates that were not warranted by the work they performed. There were no examples given of these complaints.

123 The Liquidator points out that of the total hours spent by his staff on the liquidation, only a very small amount of time was spent on it by him. In the Second Howell Affidavit, he says that the total time spent was 392.3 hours, of which he spent 16.4 hours. The Liquidator also says that the time he spent on the liquidation was reasonable and was, in fact, modest. [82]

124 The Liquidator says that the majority of the time spent on the liquidation was spent by Ms Di Michelle (of the 392.3 hours referred to in the Second Howell Affidavit, 299.10 hours was spent by her).[83]

125 Ms Di Michele had, at the relevant time, 2.5 years' experience in insolvency and her hourly rate was $265. Her classification at that time was Intermediate 2.[84] In the 2015 Rates Schedule, an Intermediate 2 is described as:

Up to 1 year experience. May be undertaking an undergraduate degree. Required to assist in day-to-day fieldwork under supervision of more senior staff. Answerable to more senior staff.

An Intermediate 1 (with a rate of $300 per hour on the 2015 Rates) has a similar description, except that they have up to 2 years' experience.

126 The Liquidator says that in his opinion, Ms Di Michele's level of experience was appropriate for undertaking the majority of the tasks in the liquidation. He says that if a graduate or first year accountant had been selected to perform the work, it would have required increased supervision by him and his senior staff, at a greater cost.[85]

127 The Liquidator goes into more detail about Ms Di Michele's attendances at the premises in the Third Howell Affidavit. The Liquidator says that as he was continuing to trade on the Business, he was responsible for ensuring that the assets of the Business, including stock, were protected and that the Business (which was a factory) was operating in a manner that was safe for its employees. The Liquidator explains that in most circumstances where he trades on a business, he arranges for one of his staff members to be present at all times (or for the majority of operating hours) to ensure that it is operating correctly. In this instance, he chose not to do that as the defendant remained on site and he wanted to keep the costs as minimal as possible.[86]

128 The Liquidator also says that instead of placing a staff member at the premises permanently, he made sure there were various controls in place to ensure the protection of the assets, including:[87]

(a) Opening an controlled account in his name as liquidator of the Company;

(b) Ensuring that all debtors paid their debts into that account;

(c) Ensuring that all expenses were approved by him;

(d) Ensuring that wages were paid by him; and

(e) Conducting regular inspections to make sure the premises were safe.

129 I pause here to observe that a number of these measures would be considered to be part of any ordinary liquidation, but I accept that many of them would have required more time and effort in the context where the Liquidator is trading on the Business.

130 The Liquidator says that he sent Ms Di Michelle to the premises to inspect the Business and its operations at times he considered to be appropriate, and she would report to him. In his view, that was a reasonable and cost-effective means of fulfilling his obligations.[88] He says that picking up one or two invoices would never have been the only purpose of her visit.[89]

131 The Liquidator also says that he attended the premises himself on a few occasions but only when necessary. He says he did not charge for much of time in doing so, including for travel which he would usually charge, as he was conscious to ensure the fees were proportionate to the return for creditors.[90]

132 The Liquidator also says that his other staff who worked on the liquidation were appropriately qualified for the tasks they performed.[91]

133 The Liquidator appears to have taken, at least in part, this objection to be a criticism of the time he spent personally on the liquidation. From the defendant's counsel's written submissions, this does not appear to be the nature of the objection.

134 By the time of the Total WIP Report, the total hours spent on the liquidation was 525.7, of which the Liquidator himself spent 33.8 hours.

135 While it remains the case that the proportion of time spent on the liquidation by the Liquidator himself is not a concern here, I will return to consider whether the total time, including that of the Liquidator himself, relates to work which was reasonably necessary.

136 I do not find the defendant's written submissions described in paragraph 122 in relation to this objection helpful: to make such a sweeping objection without more, and particularly without condescending to give any examples, is of little assistance to the Court. Beyond the complaint about Ms Di Michele attending the premises to pick up one or two invoices, nothing else is said about this objection. What work was she said to be over-qualified for? What work performed by her was unnecessary? What charge out rates were not justified by the work performed?

137 Given that Ms Di Michele was, for most of the work she performed on the liquidation, classified as an Intermediate 2 and then an Intermediate 1, I do not consider that she was over-qualified for the work she performed or that her charge out rate was not appropriate for that level. Below I will consider whether particular tasks she performed may fall within this objection, however as a general point I think that allocating the majority of the work to her was an appropriate step for the Liquidator to take in terms of attempting to minimise costs. Further, it is not uncommon in liquidations to see a more senior employee performing a greater amount of the work than was the case in this liquidation.

138 I have reviewed the Total WIP Report and I do not consider the number of instances where time is recorded for Ms Di Michele to attend the premises to be in any way excessive. There are only a small number of instances and the narrations usually include a description of what she did there or who she met with, and in no instance is it confined to picking up invoices.

Objection - there has been no explanation of why the work performed was necessary

139 This covers the elements of the Michau Objection described in paragraph 68(e) above.

140 Beyond what I have already described above when dealing with other objections, neither party says anything specifically directed at this particular objection.

141 In general terms, I do not consider this objection to be made out. The Liquidator's affidavits describe the work performed in a great deal of detail and explain why that work was necessary. This is particularly so for the period while the Liquidator was trading on the Business, seeking to sell it, and attending to completing the sale of the Business.

142 Nonetheless, this is a convenient place for me to address aspects of the work performed and remuneration claimed for it, by reference to Schedule 2 to each of the First and Second Remuneration Reports and to the WIP Reports. For convenience, I will largely use the Total WIP Report, rather than swapping between the other WIP Reports with which it overlaps. I will include here reference to entries which I consider to have been charged at an excessive rate: the observation in those instances is not that the work was not necessary, but either that the time spent on it was too much or that it should have been performed by a lower level operator.

143 Upon reviewing the Total WIP Report, I noted that a sizeable amount of time recorded against the Task Category 'Administration' by both Ms Di Michele and Anna Rosin (a Supervisor) was described as filing documents. I do not see why it was necessary for this work to be performed at either of these levels and why it could not have been done by secretaries. Roughly speaking, I estimate that around 50% of Ms Di Michele's 'Administration' time and around 20% of Ms Rosin's 'Administration' time falls into this category. I have not been given a breakdown of time/fees for operators based on Task Category with the Total WIP Report. Schedule 1 of the Second Remuneration Report is the most recent document I can find which does this. From that schedule, I can see that around 18% of Ms Di Michele's and around 46% of Ms Rosin's total cost at that time was recorded against 'Administration'. By applying the same proportions to their total costs in the Total WIP Report, and then taking the applicable percentages of 50% for Ms Di Michele and 20% for Ms Rosin, I arrive at the rough equivalent of 34 hours for Ms Di Michele and 3.56 hours for Ms Rosin which should be calculated at the secretarial rate of $215. This would give a reduction of approximately $2,350.

144 There are a number of entries in the Total WIP Report which should be reduced or not allowed for. For example:

(a) There are numerous instances of time being entered on the one day by the same operator for separate tasks but where the description of the task is essentially the same. It is unclear whether this is because they performed such tasks at different times of the day and so it is recorded separately, rather than being 'bundled', or whether there has been duplication or double-counting. Since it has not been explained, I do not know which one of these it is. Therefore, since I cannot be sure whether all of it is reasonable, some deductions are required.[92] Deducting the duplicated entry that has the lower figure means that I have calculated around $3,304 in fees which could be seen as unnecessary, depending on the interpretation adopted.

(b) There are instances where another staff member records time for discussing the liquidation or a particular task with Ms Di Michele but where it doesn't appear that the relevant operator goes on to do anything on that task. Where the operator is someone at a higher level than Ms Di Michele, I do not consider this to be unreasonable as they were likely supervising or guiding her work, which is appropriate. However, some of them are lower level operators who describe discussing a particular task with Ms Di Michele (such as the sale of business) but where that operator does not record any time for that task apart from the discussion. In those instances, I cannot see why it was necessary for the lower level operator to record that time (and therefore that cost) on the file.[93]

(c) I have noted some tasks which were performed by Ms Rosin which I consider should have been performed at a lower level, say around the Graduate level.[94] These tasks took a total of 2.5 hours and the cost was $925. Applying the Graduate rate of $250 per hour instead of Ms Rosin's rate of $370 per hour, this would lead to a reduction of $300.

(d) There are instances where the narration does not reveal what work was performed and so no amount for that work should be allowed.[95]

(e) There are entries where the work is adequately described but where there is insufficient information, either in the Total WIP Report or the Liquidator's affidavits, to explain why that work was necessary.[96]

(f) There are instances of where time would not have needed to be spent had proper enquiries been made.[97]

(g) There is an entry for the Liquidator for 29 March 2019 on page 60 at a cost of $193.50 where the description is 'coffee with Roberta Hosikan', which should not be charged to the liquidation. Ms Hosikan was the solicitor dealing with this application.

(h) There are entries for Steve Moore, a Senior at $370 per hour, on pages 52 and 54 which do not appear to require someone of that seniority but rather appear to be administrative tasks which have been charged at a cost of $582.50.

145 There has been no explanation for why the Liquidator is claiming less than the amount set out in the Total WIP Report, and based on some of the entries listed in paragraph 144 above (for example, 'coffee with Roberta'), I cannot have sufficient confidence that all entries are justified. I cannot ascertain which entries the Liquidator has already discarded or discounted, and I am unable to fully work out whether the entries I view as unjustified or excessive coincide with those which the Liquidator has effectively abandoned. It is also possible that the claim being less than the Total WIP Report may not be referable to the Liquidator's review of that report, but may just be an overall reduction made by the Liquidator. Either way, it is not explained.

146 Further, the inconsistencies in the materials lead me to the conclusion that they may have not been sufficiently reviewed by the Liquidator. By way of example:

(a) Schedule 2 of the Second Remuneration Report lists under the Task Category 'Assets' the sale of real property. However, the report to creditors to which that Remuneration Report was an attachment stated that the Company owned no real property;

(b) Similarly, Schedule 2 of the Second Remuneration Report lists under the Task Category 'Creditors' the specific task of secured creditor reporting, corresponding with secured creditors and responding to secured creditors' queries. However, the report to creditors for the Second Creditors Meeting does not identify or mention that the Company had any secured creditors. While it may have been appropriate to include this in the initial estimate given in Schedule 2 of the First Remuneration Report, by the time of the Second Remuneration Report, it is not obvious why it would have been included;

(c) Similarly, Schedule 2 of the Second Remuneration Report refers to preparation of reports pursuant to ss 436E and 439A of the Act. These reports relate to companies in voluntary administration, not liquidation, and there is no explanation as to why this was included;

(d) In relation to these three matters, while I did not see any entries in the Total WIP Report that specifically referred to work carried out for the sale of real property, dealing with secured creditors, or the preparation of the reports referred to in the preceding sub-paragraph, given that these tasks are mentioned in Schedule 2, I am not satisfied that I can be sufficiently confident that these was not charged for. Further, I note that Schedule 2 to the Second Remuneration Report was not an estimate: it was a description of the actual fees incurred and I cannot see why it would include descriptions of tasks where such tasks were not carried out;

(e) There is a sizeable amount of work recorded in the Total WIP Report under the 'Investigations' Task Category which in other parts of the Total WIP Report or in entries by other operators record the same sort of work under the 'Trade On' Task Category. While the performance of those tasks may well have been necessary and the costs reasonable, it reduces my level of confidence in the material. I note that recording time in this way likely accounts for much of the increase referred to in paragraph 79(c)(v) above.

The length of the liquidation and 'future' remuneration

147 The sale of the Business completed on 17 August 2016, such that the trade on period lasted some 14 weeks. As set out earlier, I accept the Liquidator's explanation for why he considered it necessary to trade on the Business for that period. It is apparent from a review of the Total WIP Report that the Liquidator and his staff still had quite a bit to do in the short-term after completion of the sale which was referable to the trade on. In consider that this work was necessary. There were also other matters which it was necessary to attend to.

148 However, at some point soon after then it ought to have been a simple finalisation of the liquidation, incorporating all the usual steps a liquidator has to take. This would likely include a meeting of creditors to approve the remuneration, which in this case was the Second Creditors Meeting held on 16 February 2017. The remuneration was not approved at that meeting. It appears that there was subsequent correspondence between the Liquidator and the defendant or her representatives, such as the provision of the Outcome Comparison Table, which seems to have been directed towards resolving the remuneration question. That table was provided in May 2017.

149 At the time of preparing the Second Remuneration Report, the Liquidator sought $10,000 for future remuneration from 11 January 2017 to the conclusion of the liquidation and in his report to creditors he said that the tasks remaining for completion were a dividend distribution and finalisation of the liquidation. Of this, the breakdown by Task Category was as follows: $2,000 for Creditors; $5,000 for Dividend; and $3,000 for Administration.[98] The defendant submits that adjudicating proofs of debt and calculating dividends ought not be a complicated exercise where there are 12 creditors and the defendant accounts for around 95% of that debt. I agree with that submission and would reduce the amount for 'Dividend' by $3,000.

150 The WIP for the First Period was $108,209.50, not counting the $20,000 already approved and paid.[99]

151 Reviewing the Total WIP Report for the period after 11 January 2017, there has been a total amount of $50,043.50 incurred since then (again, not counting the $20,000 already approved and paid). Again, from the Total WIP Report, I have calculated $10,344 in fees which I can identify as relating to the remuneration application after the Second Creditors Meeting. I have also calculated $5,443 in fees after that date which I can identify as relating to dealing with Mr Michau or issues relating to him, of which $4,659.50 I can identify as relating to a subpoena issued to the Liquidator relating to Mr Michau or family law matters. Neither of these matters were included in the estimate at the time of preparing Schedule 3 of the Second Remuneration Report, which I make no criticism of. If the remuneration had been approved at the Second Creditors Meeting there would have been no need for the application, and it cannot have been anticipated that the Liquidator would have had to deal with the subpoena.

152 I consider that the Liquidator's estimate of $10,000 for future work at the time of the Second Remuneration Report must have been based on what he considered to be the ordinary tasks associated with finalising the liquidation within a reasonable amount of time. Apart from the adjustment I have indicated for Dividend, I consider this to be a reasonable amount.

153 I note from the Total WIP Report that there are a number of recurring items such as lodging BAS statements (not just for the 2016/17 period), ASIC lodgements, storage fee calculation and filing which continue after 11 January 2017 and which would not have been incurred in the amounts they were had the liquidation been concluded earlier.

154 There has been no explanation given for why it has taken so long for this liquidation to be completed. Naturally it will have taken longer because of the remuneration application, but even that has taken a long time to get to this point, which has not been explained. The originating process was not filed until 5 September 2018, some 19 months or so after it had become apparent that it would need to be.

155 The Liquidator's counsel submitted that as the amount claimed was less than the Total WIP Report, I should not make any other deductions after reviewing it.

156 In my view, that approach is not justified as a starting point. Rather, I have reviewed all of the materials, including every entry in the Total WIP Report. I do not consider it appropriate to arrive at the amount purely by reference to the Total WIP Report by, for example, merely deducting the amounts referred to in paragraphs 143 and 144 above (especially since at least two of them occur after the e[100]of the First Period).100 That approach does not take into consideration the deficiencies in the materials which I have referred to in paragraphs 145 and 146 above. In my view, it is appropriate to take the WIP for the First Period of $108,209.50 (not counting the $20,000 already approved and paid), and reduce it by 30%, producing a figure for the First Period of $75,747 (rounded).

157 This is slightly less than the amount of $80,000 claimed by the Liquidator for the First Period. I consider the reduced amount to be fair and reasonable for the First Period in light of the matters which I have mentioned.

158 In my view, for the reasons outlined in paragraphs 147 to 154 above, the appropriate amount of remuneration to be approved for the period after 11 January 2017 is to take the Liquidator's estimate for future work of $10,000 and add to that the amount of $10,344 for the remuneration application and $5,443 for the subpoena/Mr Michau, and then deduct $3,000 for 'Dividend'. This gives a figure of $22,787 for work performed after 11 January 2017 to the completion of the liquidation. I do not consider it appropriate to make any further reduction on this amount.

159 Accordingly, there will be orders made approving the Liquidator's remuneration in the amount of $98,534, excluding GST. That is on top of the $20,000 already paid and approved.

160 I will hear from the parties as to an appropriate form of orders and as to costs. The parties are requested to confer following their perusal of these reasons and to contact my Associate to either submit proposed consent orders or for the matter to be listed.

[1] Exhibit MKH-1 to the First Howell Affidavit.

[9] Second Howell Affidavit, [37(b)]; See also Exhibit MKH-2 to the First Howell Affidavit.

[11] Second Howell Affidavit, [7]. The Defendant describes Mr Hodgson as her personal financial planner: Michau Affidavit, [10]. However, nothing turns on this difference in description of Mr Hodgson's role.

[18] First Howell Affidavit, [13]-[14]. For completeness, I will record here that the First Howell Affidavit at [13] refers to the amount sought in the First Proposed Resolution as $67,494 plus GST. The minutes from the Second Creditors Meeting (exhibit MKH-4 to the First Howell Affidavit) also refer to the amount as $67,494 plus GST. In the Fourth Howell Affidavit, the Liquidator explains that this is a mistake in his first affidavit and in the minutes: Fourth Howell Affidavit, [4]-[6]. It is clear from the papers for the Second Creditors Meeting, including the Liquidator's report for that meeting, that the amount claimed in the First Proposed Resolution was $80,000 plus GST.

[20] Second Howell Affidavit, [4]. Exhibit MKH-8 to the Second Howell Affidavit is a copy of the Michau Objection.

[21] Regulation 10.25.02(3) of the Corporations Regulations 2001 ('Corporations Regulations').

[25] There are some minor changes to the language used: for example, s 60-12 of the Practice Schedule refers to the extent to which the work was 'necessary and properly performed', whereas s 473(10) of the Act referred to the extent to which the work performed was 'reasonably necessary'.

[26] [2012] VSC 650 (14 December 2012).

[27] [2011] VSC 380; (2011) 85 ACSR 144 ('Thackray').

[28] Traditional Values [60], citing Thackray [2011] VSC 380; (2011) 85 ACSR 144, [63]-[64] (citations omitted).

[29] [2017] NSWSC 668 ('Sakr').

[33] [2017] NSWCA 38 ('Sanderson').

[35] First Howell Affidavit, [3]-[4].

[40] Second Howell Affidavit, [14]-[18].

[42] Second Howell Affidavit, [19]-[29], [31]-[32].

[44] Exhibit MKH-5 to the First Howell Affidavit.

[46] Exhibit MKH-2 to the First Howell Affidavit includes the First Remuneration Report.

[47] Exhibit MKH-11 to the Fourth Howell Affidavit.

[48] Exhibit MKH-2 to the First Howell Affidavit.

[49] This excludes the $20,000 already approved and paid, and hence there is a 'write off' of $28,209.50 in the amount sought.

[50] Michau Affidavit, [21]; Exhibit TM-4 to the Michau Affidavit.

[52] Michau Objection, Exhibit MKH-8 to the Second Howell Affidavit; Michau Affidavit, [23].

[53] See paragraphs 19(e) and (f) above.

[61] See paragraph 47(c) above.

[63] Third Howell Affidavit, [5]-[6].

[64] See paragraphs 18 and 19 above.

[65] Second Howell Affidavit, [9]; Michau Affidavit, [11(a)].

[66] Exhibit MKH-2 to the First Howell Affidavit.

[67] Exhibit MKH-2 to the First Howell Affidavit.

[77] Second Howell Affidavit, [42]-[43].

[80] Second Howell Affidavit, [44]; Third Howell Affidavit, [8].

[82] Second Howell Affidavit, [45]-[46].

[86] Third Howell Affidavit, [9]-[10].

[92] The instances I have identified are entries 1 and 3 on page 12 for Ms Di Michele; the two entries on page 12 for Ms Di Michele for 9 June 2016 for 'filing sorted and filed, all trade on matters sorted and filed, file refs added and filed' against Trade On; entries 2 and 3 on page 14 for Ms Di Michele; the last entry on page 14 and the first entry on page 15 for Ms Di Michele; the two entries on page 22 for 10 August 2016 for Ms Di Michele; the 3rd and 4th last entries on page 25 for Ms Di Michele for 30 August 2016; the last two entries on page 28 and the first entry on page 29; the first two entries on page 31 for Ms Di Michele; the 3rd and 4th last entries on page 32 for Ms Di Michele; the 4th and 6th entries on page 37 for Ms Di Michele; the two entries for Ms Di Michele on page 39 for 24 November 2016 for transactions reconciled in account re migration to CORE; the 4th and 6th last entries on page 42 for Ms Di Michele for 20 December 2016; the 4th and 6th entries on page 43 for Ms Di Michele for 21 December 2016 where the description of reviewing the entire report etc. is identical; and the last entry on page 51 and the first entry on page 52 for Ms Di Michele.

[93] In this regard, I note the time on pages 8,15 and 16 for Michael Lam.

[94] The instances I have identified are the entries on page 2 of the Total WIP Report for 13 and 15 May 2016 relating to matters such as preparing proforma letters, mail redirection, data entry, and photocopying searches; and the entries on page 3 of the Total WIP Report for 17 May 2016 relating to sending a notice of meeting, scanning attachments, preparing labels, franking envelopes, photocopying report to creditors, mailing out same.

[95] For example, the entry for the Liquidator on page 42 for 19 December 2016 at a cost of $123.

[96] For example, the entry for the Liquidator on page 52 for 4 August 2017 for 'rateable remuneration' at a cost of $1,354.50.

[97] For example, the entry on page 57 for Yiran Lin for 10 July 2018 for going to the registry of the Family Court to deliver the subpoenaed documents but the registry was closed, at a cost of $99.

[98] Schedule 3 of the Second Remuneration Report.

[99] From the Total WIP Report, I can see that it was paid on 13 October 2016 and the running balance of WIP reduced by $20,000 on that date.

[100] As a rough figure, the amounts in those two paragraphs come to around $8,500.