Plaintiff v Defendant [2019] VSC 563 | Case summary

Supreme Court of Victoria|2019-08-23|Before: Matthews JR

CORPORATIONS - External administration - Winding up of company terminated - Application by director of company for review of remuneration of former liquidator approved by creditors prior to the termination of the winding up - Application by liquidator for approval of balance of remuneration - Insolvency Practice Schedule (Schedule 2 to the Corporations Act (2001) (Cth)), ss 60-10 and 60-11 apply - Remuneration approved in a reduced amount - Westpoint Corporation Pty Ltd (in liq) v Yeo [2018] VSC 705 - IMO Traditional Values Management Limited (in liq) [2012] VSC 650 - In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 - Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38.

1 By an interlocutory process filed on 20 February 2019, the Plaintiff (Christopher Morgan) seeks a review of the determination made by creditors of Twenty-Seventh Android Pty Ltd ('Company') of the remuneration of the defendant (Andrew Poulter) in his capacity as the former liquidator of the Company ('Former Liquidator'), where that remuneration was incurred in his capacity as liquidator of the Company before the liquidation was terminated.

2 As will be explained in more detail below, this decision concerns both an application for review of the Former Liquidator's remuneration as already approved by creditors, as well as an application by the Former Liquidator for approval of his remuneration. The total amount of remuneration sought by the Former Liquidator is $90,394 (plus GST).

3 The Plaintiff relies on three affidavits sworn by him on:

(a) 16 November 2018 ('First Morgan Affidavit');

(b) 3 December 2018 ('Second Morgan Affidavit'); and

(c) 19 February 2019 ('Third Morgan Affidavit').

4 The Former Liquidator relies on three affidavits sworn by him on:

(a) 26 November 2018 ('First Poulter Affidavit');

(b) 10 December 2018 ('Second Poulter Affidavit'); and

(c) 3 April 2019 ('Third Poulter Affidavit').

5 For the reasons set out below, I consider it appropriate to review the remuneration determination made by creditors of the Company. Further, I consider it appropriate to approve the Former Liquidator's remuneration in the amount of $52,369 (plus GST).

6 At all material times, the Plaintiff and his sister, Suzanne Marie Bennetts, have been the directors of the Company. Together with their mother, Shirley Morgan, they are the three shareholders of the Company.[1]

7 The Company began trading in 1983 and, according to the Plaintiff, its sole purpose was to hold a property in Beach Street Port Fairy, Victoria ('Property'). The Plaintiff describes the Property as a beach house for himself, his wife and children, his mother, his sister and other members of his extended family.[2] From time to time, the Property was also available to be rented as short-term or holiday accommodation.[3]

The circumstances in which the Former Liquidator was appointed as liquidator of the Company

8 Following the Company's failure to comply with a statutory demand dated 5 April 2018 ('Statutory Demand') served by the Commissioner for State Revenue ('SRO'), the SRO made an application to this Court to wind up the Company. On 12 September 2018, I made orders winding up the Company and appointing the Former Liquidator as liquidator of the Company.[4] The Statutory Demand sought payment of outstanding land tax in the amount of $21,439.63 ('SRO Debt').[5]

(a) he did not know about the Statutory Demand and it did not come to the Company's attention, as it was sent by the SRO to the registered office of the Company, which was his previous residential address in Mount Waverley. He had moved out of that property in 2011 and had believed, erroneously, that the external accountants for the Company had updated the registered office with ASIC at that time;[6]

(b) had he known about the Statutory Demand, he would have caused the Company to comply with it or make an application within the requisite time for it to be set aside;[7]

(c) he did not know about the SRO Debt;[8]

(d) he also did not know about the winding-up application prior to it being determined by the Court. Had he known about it, he would have either attempted to negotiate with the SRO or paid the SRO Debt. The Company did not appear at the return of the winding-up application;[9] and

(e) he learned of the Statutory Demand and the winding up of the Company on about 15 September 2018, when he returned a call to the Former Liquidator.[10]

10 At the time the Former Liquidator was appointed, the Company owned the Property and the creditors were the SRO (for the SRO Debt), and Moyne Shire Council ('MSC').

The termination of the liquidation of the Company

11 On 19 November 2018, the Plaintiff commenced this proceeding, seeking orders for the termination of the liquidation of the Company ('Termination Application'). The First and Second Morgan Affidavits were filed in support of the Termination Application; and the First and Second Poulter Affidavits were filed by the Former Liquidator in respect of it.

12 The Termination Application was heard and determined by Gardiner AsJ on 11 December 2018. In the 'Other Matters' section of the orders made on that day, Gardiner AsJ recorded the following:

The Plaintiff's application was made on the basis that the Liquidator's reasonable remuneration and disbursements be paid. The Plaintiff has indicated that he may seek a review by the Court of the Liquidator's remuneration. The Plaintiff has provided an undertaking to the Court to pay the liquidator's reasonable remuneration and disbursements (including the Liquidator's costs of this proceeding) in an amount to be agreed between the parties or in the absence of an agreement to be determined by this Honourable Court upon an application by the Plaintiff for a review of the Liquidator's remuneration and/or disbursements

13 On that day, the Court made orders, including the following ('Termination Orders'):

(a) Terminating the liquidation of the Company in accordance with s 482 of the Corporations Act 2001 (Cth) ('Act');

(b) The Plaintiff to pay the Former Liquidator's remuneration and disbursements, the quantum of such to be determined by agreement between the Plaintiff and the Liquidator, or further order of the Court;

(c) The Plaintiff to provide to the Former Liquidator, by 11 January 2019, a bank guarantee for $70,000 to be satisfied upon presentation to the bank of evidence of an agreement or order pursuant to paragraph (b); or evidence of $70,000 being paid into the trust account of the Plaintiff's solicitors, to be held on trust pending an outcome pursuant to paragraph (b); and

(d) Setting a date for the Plaintiff to file any application for review of the Former Liquidator's remuneration.

14 As I apprehend it, the Termination Orders were made as all creditors of the Company had been paid (or there was a mechanism in place for them to be paid by the Plaintiff), and the Court was satisfied that the Company was solvent as appropriate arrangements were in place to ensure it could meet its ongoing commitments.

Previous approval of the Former Liquidator's remuneration

15 On 10 October 2018, the Former Liquidator circulated the initial information for creditors ('Creditors Circular'), which included information regarding his remuneration and details of the hourly rates for each of the staff members of IRT Advisory, the Former Liquidator's firm, who would be working on the matter.[11]

16 The Creditors Circular proposed a resolution regarding the Former Liquidator's remuneration, approving the Former Liquidator's remuneration as follows ('Remuneration Resolution'):[12]

(a) For the period 12 to 30 September 2018, a fixed sum of $21,140 (excluding GST); and

(b) Prospective fees up to a capped amount of $30,430 (excluding GST).

17 The Creditors Circular was served on the Plaintiff on 12 October 2018 and he did not oppose the Remuneration Resolution.[13] The Remuneration Resolution was passed by way of a 'proposal without a meeting' as provided for under the Practice Schedule and the relevant rules on 2 November 2018 ('Remuneration Determination').[14] It is the Remuneration Determination which the Plaintiff seeks the Court to review. I will return to the circumstances in which the Plaintiff did not vote in respect of the Remuneration Resolution and its passing.

18 To the extent that this application involves a determination of the Former Liquidation's remuneration that has not previously been approved by creditors, then s 60-10 of the Practice Schedule applies. 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.

...

(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.

19 To the extent that this application involves a review of the Former Liquidation's remuneration that has previously been approved by creditors, then s 60-11 of the Practice Schedule applies. It relevantly provides as follows:

60-11 Review of remuneration determinations

Review on application

(1) Any of the following may apply to the Court for a review of a remuneration determination for an external administrator of a company:

(a) ASIC;

(b) a person with a financial interest in the external administration of the company;

(c) an officer of the company.

(2) [Section 198G does not apply] Paragraph 1(c) has effect despite section 198G.

(3) [Court to review if it considers it appropriate] On application under subsection (1), the Court may, if it considers it appropriate to do so, review the remuneration determination.

Court must affirm, vary or set aside remuneration determination

(4) After reviewing the remuneration determination, the Court must:

(a) affirm the remuneration determination; or

(b) vary the remuneration determination; or

(c) set aside the remuneration determination and substitute another remuneration determination.

Exception

(f) Subsection (1) does not apply to a remuneration determination made by the Court.

20 In exercising the power to review or determine the Former 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;

(m) any other relevant matters.

21 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 regarding an external administrator's remuneration

Principles in respect of the Court making a remuneration determination

22 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. In the case of liquidators, these provisions were contained in s 473 of the Act. There was no disagreement between the parties as to the applicable principles.

23 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.[15]

24 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.

25 Gardiner AsJ summarised the relevant principles in IMO Traditional Values Management Limited (in liq)[16] ('Traditional Values') at paragraphs [18] to [25].

26 For convenience I adopt his Honour's summary, which referred to the principles identified by Davies J in Thackray v Gunns Plantations:[17]

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.[18]

27 Black J of the New South Wales Supreme Court also summarised the applicable principles in In the matter of Sakr Nominees Pty Limited.[19] 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[20].

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.[21]

28 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:[22]

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.

29 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[23] 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.[24]

Principles in respect of the Court reviewing a remuneration determination

30 The written submission from the Plaintiff's counsel helpfully summarised the applicable principles in respect of the Court reviewing a remuneration determination. There appeared to be common ground between the parties in this respect.

31 The Court's power to review a remuneration determination is discretionary and involves a two stage process. That it is discretionary is evident from the wording of s 60-11(3) of the Practice Schedule, which states that the Court may, upon an application for review being made, review the remuneration determination if it considers it appropriate to do so.

32 Again, these provisions are relatively new but are very similar to the now repealed ss 473(5) and (6) of the Act in the case of liquidators and s 449E(2) of the Act in the case of administrators. Therefore, the approach followed by the Court when considering those provisions continue to be applicable.

33 First, the Court must decide whether it is just that a review be conducted. The applicant for review bears the onus in this respect. Second, the Court must consider whether the remuneration claimed is fair and reasonable in the circumstances. The Former Liquidator bears the onus in this respect.

34 Sloss J recently summarised the relevant principles in Westpoint Corporation Pty Ltd (in liq) v Yeo.[25] Describing the first of the two stage process, her Honour stated:

[365] As Barrett J explained in Paul's Retail Pty Ltd v Morgan in relation to an application for review under s 449E_:_[26]

When an application for review comes before it, the court must first decide whether, in the light of the statutory provisions, it is just that a review be conducted. Because the s 449E(2) power is obviously discretionary, there is a threshold question whether there is some demonstrated need to inquire into the appropriateness of the originally determined quantum. Only if some need is shown will the court actually proceed to a review.

[366] Further, [...] when the court is considering the threshold question of whether it should embark on a review, the relevant test is that adopted by Brereton J in Cardinal Project Services Pty Ltd,[27] namely 'whether there is some demonstrated need to inquire into the originally determined quantum'.[28] In discussing 'demonstrated need', his Honour explained that:[29]

. . . on the threshold question, there will generally be no occasion to come to firm conclusions, and the approach will be more impressionistic. The onus upon a person seeking to persuade the court to undertake a review is not a particularly heavy one, and it suffices if there is a well-based suspicion indicating a need for further investigation.

Further, his Honour said, if the Court determines to conduct such a review, 'the ultimate test is whether the remuneration is in all the circumstances reasonable'.[30]

[367] In In the matter of Bestcare Foods Ltd (subject to a Deed of Company Arrangement)[31] Black J, in dealing with an application for an order for review of the remuneration of administrators under s 449E(2) that was brought several years after the remuneration had been approved, observed that:[32]

[55] . . . The discretion whether to order such a review must be exercised having regard to the information that was in fact provided to creditors . . . the period of time which has passed since the work undertaken, and the absence of complaint by Mr Goldring [the applicant], other contributories or creditors over that period. . . . the question initially to be addressed by the Court is whether a sufficient basis exists to order a review of the administrators' or deed administrators' remuneration, and it is not necessary for the administrators or deed administrators to justify that remuneration unless and until some basis for a review of it has been established.

[57] The approval of remuneration by the creditors and the passage of time are also of particular significance in this case. . . .

[368] Black J accepted that where the remuneration has been approved by creditors after inspecting documentation provided by the administrators, that approval did not operate as an absolute bar to review by the court. But his Honour indicated that where creditors had been informed about particular work after it had been undertaken, matters such as a failure on the part of the creditors to raise complaints or objections about that work in a timely way were matters to which the Court ought to have regard when exercising its discretion.[33]

35 I note that in Cardinal, Brereton J stated that the criterion in s 473(10) of the Act (the predecessor to s 60-12 of the Practice Schedule), namely whether the remuneration is reasonable, taking into account any or all of the enumerated matters, is relevant to both the threshold question whether or not to review as well as in exercising the power to review.[34] It was in that context that he gave the explanation cited in paragraph 366 of Sloss J's summary in Westpoint, as set out above.

36 Accordingly, the principles summarised in paragraphs 25 to 29 above apply in respect of reviews of remuneration determinations as well.

37 The Former Liquidator deposes that on 3 April 2019 he prepared a remuneration statement for the purposes of this application which details the work he and his staff have undertaken in the liquidation of the Company and in the period since the termination of the liquidation ('Remuneration Statement'). The total remuneration claimed, including an estimate for work to be undertaken from 1 to 29 April 2019, is $90,394 (plus GST of $9,039.40, giving a total of $99,433.40).[35] This comprises (all figures are exclusive of GST):[36]

(a) $21,140 for the liquidation period 12 September to 30 September 2018 ('First Period');

(b) $35,944 for the liquidation period 1 October to 11 December 2018 ('Second Period');

(c) $17,560 for the post-liquidation period 12 December 2018 to 31 March 2019 ('Third Period') and

(d) $15,750 for the post-liquidation period 1 April to 29 April 2019 ('Fourth Period').

38 The Remuneration Statement contains, at Schedule 2, a summary of work completed and expected to be completed in the winding up and post liquidation period, along with the time spent on that work and the remuneration claimed for it.

39 Both the Creditors Circular and the Remuneration Statement contain a schedule of hourly rates for IRT Advisory staff members which were applicable to the liquidation of the Company.

40 In the Creditors Circular, the Former Liquidator explained that he would be calculating his remuneration on a time based/hourly rates basis ('time cost basis'). He said that this was because:

(a) It ensures creditors are only charged for work that is performed, with time recorded and charged in six-minute units;

(b) A number of tasks were required to be performed which do not relate to the realisation of assets, such as responding to creditors, reporting to ASIC and distributing funds;

(c) It was not possible to estimate with certainty the total amount of fees necessary to complete required tasks;

(d) A time cost basis for remuneration calculates fees by the time spent at the level appropriate to the work performed; and

(e) This method provides full accountability in the method of calculation.

41 In calculating remuneration on the time cost basis, the Former Liquidator and his staff allocated their time to specific task areas, being Creditors, Investigations, Administration (each, a 'Task Area').

42 The Creditors Circular contained a description of the work performed for the First Period along with the fees charged for that work. For the fees incurred for the First Period, the Creditors Circular also contained a breakdown of the total hours and total charges for each staff member, broken down into the Task Areas. It also contained a description of the future work to be done, the estimated fees for that work, and the contingencies which may affect that estimate.

43 The Remuneration Statement contains similar information, updated for actual fees incurred for each period. It also contains, for each period, additional schedules in the form of work-in-progress reports ('WIP Reports'). For each task performed in the liquidation, these WIP Reports show the date, staff member, level, Task Area, task code, rate per hour, time spent, charge, and narration/description of the task performed.

44 From Schedule 2 to the Remuneration Statement, it can be seen that the following amounts are claimed (excluding GST):

45 There are also schedules to the Remuneration Statement which set out, for the First, Second and Third Periods, the staff members who worked on the matter, their level, hourly rate, total hours and total charge broken down by Task Area.

46 The Former Liquidator says that his solicitors, Meerkin & Apel, have advised him that their legal fees (inclusive of GST and disbursements, including counsel's fees) are $61,346.79, comprised as follows:[37]

(a) $30,544.25 for the First and Second Periods;

(b) $12,342.25 for the Third Period;

(c) $6,085.29 in disbursements (of which $4,840 is counsel's fees) for the First, Second and Third Periods; and

(d) $12,375 for the Fourth Period.

47 In addition, the Former Liquidator has incurred $1,393.70 (including GST) in external disbursements (being an insurance premium of $1,147.74 plus search fees).[38]

Description of work performed in the First Period

48 In the Creditors Circular, the Former Liquidator summarised the work performed in the First Period as follows:

(a) Notified ASIC of his appointment and advertised same;

(b) Advised various banks and the ATO of the Company's liquidation;

(c) Requested the Company's books and records from the Plaintiff and the external accountant;

(d) Held discussions with the directors and their advisors to discuss the Company's affairs and circumstances;

(e) Corresponded with the Plaintiff and his advisor regarding an application to terminate the winding up of the Company;

(f) Engaged and corresponded with a solicitor to assist him with filing an application to terminate the winding up of the Company;

(g) Commenced investigations into the Company's affairs;

(h) Conducted various searches with statutory authorities and public databases to establish if the Company holds any additional assets to those previously disclosed to him;

(i) Discussions with and requests for documents from the ATO;

(j) Contacted potential creditors to notify them of the appointment;

(k) Ongoing communications with creditors;

(l) Corresponded with the mortgagee relating to its security over the Property;[39]

(m) Liaised with local real estate agents regarding the Property; and

(n) Attended to all statutory and administrative matters associated with the winding up.

49 As set out in paragraphs 16 and 17 above, the Former Liquidator sought approval from creditors, which was obtained, of his remuneration for this work in the fixed amount of $21,140 (excluding GST).

Description of work to be performed for the balance of the liquidation, as set out in the Creditors Circular

50 In the Creditors Circular, the Former Liquidator summarised the work he expected would need to be performed after 30 September 2018 until the conclusion of the liquidation, as follows:

(a) Preparation of the Creditors Circular, including the remuneration report;

(b) Further investigations into the affairs of the Company;

(c) Calling for and adjudicating formal proofs of debt from priority and ordinary unsecured creditors;

(d) Attending to various matters associated with seeking to have the winding up terminated;

(e) Attending to responses from creditors regarding proposed resolutions without a meeting;

(f) Completing and lodging statutory reports with ASIC, and attending to other statutory requirements;

(g) Ongoing review of general correspondence received; and

(h) Maintenance and update of administration checklist and file.

51 As set out in paragraphs 16 and 17 above, the Former Liquidator sought approval from creditors, which was obtained, of his remuneration for this estimated work in a capped amount of $30,000 (excluding GST).

52 The Former Liquidator indicated in the Creditors Circular that if the liquidation did not proceed as expected, he may seek approval of further remuneration and provide details of why it had changed. He stated that matters which may affect the progress and cost of the liquidation include:

(a) Further investigations into the affairs of the Company;

(b) Unexpected delays in the process of terminating the winding up;

(c) Funding and payment of all Company debts in full, including his remuneration and disbursements; and

(d) Application to terminate the winding up is not successful or is delayed.

Description of work performed in the Second Period

53 The Former Liquidator does not provide the same discursive description of work performed in the Second Period as that described above. Rather, the Third Poulter Affidavit describes the liquidation and various events, including the Termination Application, in a chronological fashion, which includes reference to the work performed. In addition, the material contained in Schedule 2 of the Remuneration Statement for the Second Period describes the work performed, and the WIP Report for that period sets that out in some detail.

54 From these materials, the work performed by the Former Liquidator and his staff in the Second Period included:

(a) The matters referred to in paragraph 50 above;

(b) Continued investigations in respect of the Property, including the payment of past rental from the Property;

(c) Liaising with the Plaintiff and his own solicitors in respect of the Termination Application; and

(d) Preparing two affidavits for the Termination Application, including reviewing and responding to the Plaintiff's two affidavits.

Description of work performed in the Third Period

55 I make the same observations as I made in paragraph 53 above regarding the material in respect of the Third Period.

56 In summary, the work performed by the Former Liquidator and his staff in the Third Period included:

(a) Preparing and lodging ASIC forms in respect of the conclusion of the liquidation;

(b) Dealing with insurance matters;

(c) Preparing the Remuneration Statement;

(d) Preparing the Third Poulter Affidavit, including reviewing and responding to the Third Morgan Affidavit; and

(e) Liaising with his solicitors and the Plaintiff in respect of this application.

Description of work performed or to be performed in the Fourth Period

57 I make the same observations as I made in paragraph 53 above regarding the material in respect of the Fourth Period, except that there is no WIP Report for that period.

58 In summary, the work performed or to be performed by the Former Liquidator in the Fourth Period concerns the work done in connection with the Former Liquidator's fees and this application, including:

(a) Management review of fee approval position, preparation of fee note, drawing remuneration;

(b) Internal meetings to discuss status of issues or proceedings, review of documents;

(c) Liaising with solicitors regarding legal or court proceedings;

(d) Assistance to solicitors with preparation of affidavits and other court documents; and

(e) Communication and negotiations with the Plaintiff, pre-hearing conferences, and appearances in Court.

59 As well as the evidence already referred to above from the Plaintiff, below I have summarised aspects of the Plaintiff's evidence which are relevant to the remuneration question.

60 The Plaintiff says that the Company's sole purpose was to hold the Property. He has been responsible for meeting the operational costs associated with the Property, and with the exception of the SRO Debt at the time, has met those expenses.[40]

61 In his first affidavit, the Plaintiff stated that the Company has four mortgage facilities secured over the Property and that the Company is up to date on payments due for all four facilities. He refers to an email dated 20 September 2018 from the mortgagee, the Commonwealth Bank of Australia ('CBA') stating that despite the Company being in liquidation, the CBA has no intention to call on its security at this stage. The Plaintiff exhibits a copy of this email and a copy of CBA bank statements for what he describes as the four mortgage facilities over the Property, showing an outstanding mortgage balance as at 11 October 2018 of approximately $614,530.30.[41] He says that to the best of his knowledge, regular payments have been made by him and the other shareholders from their respective personal accounts, for the life of each facility, and at all relevant times each facility has not been in arrears.[42]

62 I have reviewed the email and bank statements referred to in the previous paragraph,[43] along with the certificate of title for the Property,[44] and it seems to me that the Plaintiff's description is not quite accurate. The Company is not the borrower under the four CBA facilities: the Plaintiff is in respect of three of them, and the borrower for the fourth facility is TT Marquet Pty Ltd. It seems to me that the borrowers are the Plaintiff or entities associated with him, and that the facilities are secured by a mortgage to CBA over the Property.

63 The Plaintiff also says that an appraisal of the Property dated 31 October 2018 indicated the value of the Property as $2,300,000, such that there is approximately $1.685m in equity in the Property.[45]

64 At the time of the Former Liquidator's appointment, the Company's outstanding creditors were:

(a) the SRO;

(b) MSC;

(c) possibly, the CBA, in the amount of $614,530.30; and

(d) possibly, the Plaintiff, in the amount of around $400,000, for contributions he has made by paying the operational costs of the Property since its purchase, such as MSC rates, water rates and charges, maintenance and general expenses.[46]

65 The Plaintiff deposes that on 23 October 2018, he made enquiries of the SRO to ascertain the Company's outstanding liability and then on that day he paid the SRO Debt in full, inclusive of the SRO's further costs incurred as petitioning creditor, in the amount of $27,319.63.

66 The situation in respect of MSC is somewhat confusing. The Plaintiff said in his first affidavit that the only debt known to him as at the date of that affidavit was the SRO Debt, and that rates to MSC in the amount of $4,224 are due on 30 June 2019.[47] In his third affidavit, the Plaintiff says that prior to the Remuneration Determination, he had paid what he understood to be the Company's liability to MSC.[48]

67 MSC submitted a proof of debt to the Former Liquidator dated 4 October 2018. That proof of debt claimed rates in the amount of $4,231.21, being the balance including arrears and interest.[49] There is also a copy of a rates notice from MSC which is undated but refers to a due date for payment of 30 September 2018.[50] From what I can deduce, $8,896.71 was the total due, with $5,728.71 due as an instalment amount payable by 30 September 2018. This appears to have included an amount for arrears, plus an amount by way of one of the instalment payments for the current year, with remaining instalments of $1,056 each due on 30 November 2018 and 28 February and 31 May 2019.

68 As best as I can ascertain, therefore, while the Plaintiff paid what he thought was the amount due to MSC prior to the Remuneration Determination, that was not the totality of what was owed.

69 In light of the mortgage to CBA over the Property which secures facilities provided by the CBA to the Plaintiff or entities associated with him, it seems to me that one could possibly describe the CBA as a contingent creditor of the Company, or as the Company having a contingent liability to the CBA in that the CBA could, in certain circumstances, enforce its mortgage against the Property. However, as noted above, primary liability to the CBA rests with the borrowers under the CBA facilities, not with the Company.

70 In relation to the amounts possibly owing to the Plaintiff by the Company, the Plaintiff says that he wrote to the Former Liquidator on 25 September 2018 and stated that he had no intention of being included as a creditor of the Company and would not assert a claim against the Company.[51]

71 The Plaintiff says that he did not claim as a creditor in the liquidation of the Company or vote on the Remuneration Resolution as he believed that he was the only creditor of the Company and that the Termination Application would be more straightforward if he did not do so. He says that he believed he was the only creditor at the time as he had paid the SRO Debt and believed he had paid what was owing to MSC.[52]

72 The Plaintiff also says that had he been properly informed at the time by the MSC as to the balance of the Company's account and had he then paid that amount, MSC would not have been entitled to vote on the Remuneration Resolution.[53] Further, he points out that if that had been the case, then the Former Liquidator would have been required to seek approval of his remuneration from the Court,[54] presumably as there would have been no creditors voting on the Remuneration Resolution.

Previous requests for further information regarding the claimed remuneration

73 The Plaintiff referred to the following matters in terms of his requests for further information regarding the Former Liquidator's claimed remuneration:

(a) On 22 October 2018, in the context of the foreshadowed application to terminate the winding up, his solicitors wrote to the Former Liquidator requesting a remuneration report so that he could consider whether he agreed with the quantum of the remuneration;[55]

(b) On 31 October and 7 November 2018, his solicitors sent emails to the Former Liquidator's office requesting a WIP report so that he could consider the quantum of the remuneration;[56]

(c) That request was repeated by his solicitors by letter to Mr Fuller on 30 November 2018;[57]

(d) On 12 December 2018, the Former Liquidator's solicitors sent a letter to his solicitor, stating that the Former Liquidator would be able to establish the reasonableness of his fees;

(e) On 8 January 2019, his solicitors again requested a WIP or remuneration report; and

(f) On 18 January 2019, the Former Liquidator's sent a number of documents to his solicitors, including a copy of a remuneration statement dated 18 January 2019.[58] I note that this does not contain a WIP report, although it does contain a description of the work performed for the period from 12 October to 11 December 2018.

The Plaintiff's intention to have the liquidation of the Company terminated

74 The Plaintiff says that the following notice was given to the Former Liquidator of the intention to apply to the Court for the termination of the winding up of the Company:

(a) On 18 September 2018, he informed one of the Former Liquidator's employees (John Fuller) of this intention and that he had engaged Ben Verney (of Grey House Partners) to assist him;[59]

(b) On the same day, Mr Verney sent an email to Mr Fuller in respect of the foreshadowed application and requested that the Former Liquidator undertake the relevant steps to make the application;[60]

(c) Around one week later, on 25 September 2019, Mr Verney sent an email to the Former Liquidator stating that his remuneration and costs should be minimised pending the commencement of the application;[61]

(d) On 12 October 2018, he sent an email to Mr Fuller requesting that the Former Liquidator put all further action on hold so that he may seek legal advice;[62] and

(e) On 22 October 2018, his solicitors wrote to the Former Liquidator, referring to the foreshadowed application and asking whether he would consent to the relief sought.[63]

75 The Plaintiff submits that the remuneration claimed by the Former Liquidator is unreasonable. I have summarised the main submissions and the basis upon which it is said to be unreasonable below:

(a) The period for the liquidation was very short (s 60-12(c) of the Practice Schedule). The liquidation of the Company took a total of 3 months, and the Former Liquidator was on notice from 18 September 2018 that the Plaintiff intended to make an application for the termination of the liquidation;

(b) The value and nature of the property of the Company was very straightforward (s 60-12(h) of the Practice Schedule): there was only one asset, the Property, and the Company had no bank account, no ABN and no tax file number;

(c) Only two creditors sought to prove in the liquidation (s 60-12(i) of the Practice Schedule): the SRO in respect of the SRO Debt and the petitioning creditor's costs; and MSC in the amount of $4,231.21. Both of these creditors were repaid by the Plaintiff prior to the termination of the liquidation;

(d) The Former Liquidator was not required to take any steps to, and did not realise any property of the Company such that the extent of the substantive work undertaken by the Former Liquidator may be summarised as (s 60-12(e), (f) and (g) of the Practice Schedule):

(i) Statutory attendances including in relation to approval of remuneration;

(ii) Steps to identify and protect assets of the Company, steps to identify potential creditors of the Company, and to form a view of the Company's solvency;

(iii) Attendances in relation to the proposed termination of the liquidation; and

(iv) Attendances in relation to the subsequent review of the Former Liquidator's remuneration.

(e) The Remuneration Determination was approved by a single creditor, admitted in the sum of $4,231. While the SRO had voted in favour of the Remuneration Resolution, as the SRO Debt had been paid by that time, it was not eligible to vote. The Plaintiff could have voted in relation to the Remuneration Resolution, but did not, for the reasons set out in paragraph 71 above.

76 As a consequence, the Plaintiff says that the Former Liquidator has not established that the claimed remuneration is fair and reasonable remuneration, as:

(a) The Former Liquidator's proposed costs are not proportionate (ss 60-12(c), (e), (f), (h) and (i) of the Practice Schedule);

(b) Unnecessary attendances have been undertaken by the Former Liquidator in circumstances where the Plaintiff gave early notice that he intended to apply to terminate the liquidation and promptly paid all of the Company's creditors (ss 60-12(a) and (b) of the Practice Schedule);

(c) The Former Liquidator's opposition to the Termination Application was unreasonable in circumstances where there was no real basis to question the Company's solvency and the Plaintiff had paid all of the Company's debts and agreed to pay any future debts. This caused significant additional fees and legal costs to be incurred;

(d) The Former Liquidator seeks payment for:

(i) 53 hours of 'Administration' after the termination of his appointment, fees in respect of which he has no right to payment pursuant to statute or the undertaking given as part of the Termination Orders;

(ii) 50.8 hours of 'Administration' prior to the Termination; and

(iii) 49.7 hours of 'Investigations' in relation to a company whose sole asset was a beach house, which never traded, and which does not have an ABN, tax file number or bank account;

(e) The Plaintiff and the Former Liquidator, did not, in this application, seek a review or approval of disbursements for legal fees. However, the Plaintiff says that the Former Liquidator's claimed remuneration needs to be considered in light of the legal fees, which are substantial, and which suggest that quite a proportion of the work done in respect of the Termination Application and the remuneration application was performed by the lawyers.

77 The Plaintiff says that although the work done by the Former Liquidator is relevant, so too is the question of whether it was reasonable to carry it out, and the appropriateness of the amount charged. For the reasons summarised in paragraph 76 above, the Plaintiff says that the Former Liquidator's claimed remuneration is not reasonable, necessary or proportionate.

78 The Plaintiff referred to the Creditors Circular where, in October 2018, the Former Liquidator estimated that his total remuneration for the liquidation would be between $40,000 and $51,570 (excluding GST) and foreshadowed the Termination Application. The Creditors Circular stated:

The above estimate is based on matters and issues that are reasonably foreseeable in the current circumstances of the winding up. It is possible that unforeseen issues may arise during the winding up and in particular to the process of seeking to terminate the winding up. In which case, I may write to creditors again seeking approval for further remuneration.

It is also possible that issues relating to the winding up and the application to terminate the winding up are not as complex as presently contemplated, or I am able to complete the necessary tasks in a more time effective manner. In this scenario, my time costs may be less than the above estimate. Accordingly, I may only draw remuneration that has been properly incurred, and not the full amount which creditors may approve.

79 The Plaintiff submits that nothing unforeseen subsequently arose, the simplicity of the liquidation ultimately revealed itself, and the liquidation was ultimately not as complex as contemplated at the time of the Creditors Circular. The Plaintiff says that the subsequent doubling of the Former Liquidator's remuneration remains unexplained.

80 Further, the Plaintiff points to the Former Liquidator's evidence that the 'vast majority of fees and disbursements incurred after 19 November 2018 related to the proceeding itself and in particular to the issue of solvency'.[64] The Plaintiff submits that it is not clear how the Former Liquidator's fees are reasonable and necessary, given:

(a) The ultimate simplicity of the issue of solvency;

(b) The relatively limited volume of affidavit material filed by the Former Liquidator in this proceeding; and

(c) The fact that the Former Liquidator instructed solicitors to act on his behalf in the proceeding.

81 The Plaintiff acknowledged that it was necessary for the Former Liquidator to form a view of the Company's solvency for the purposes of the Termination Application and that to a very limited degree some additional complexity would have been caused in the liquidation by the absence of books and records of the Company and confusion regarding income from the Property and the payment of taxation to the ATO.

82 Finally, the Plaintiff complains that his solicitors requested substantive details of the Former Liquidator's claimed remuneration and work completed on numerous occasions between 22 October 2018 and 8 January 2019, yet it was not until 18 January 2019[65] that the Plaintiff received sufficient information to enable him to form a view that this application was necessary.

83 The Former Liquidator submits that it is relevant to consider the work that was necessary to be done. If it was necessary, then there is no reason why the Former Liquidator should not be remunerated for that work. Moreover, provided it was reasonable for the work to be carried out and the amount charged was reasonable, then he should recover his remuneration.[66]

84 The Former Liquidator submits that the work undertaken by him and his staff was necessary and reasonable in performing his duties and statutory obligations. This included the usual searches and investigations into the assets of the Company and its liabilities.

85 The Former Liquidator relies on an early suggestion from the Plaintiff that he would be proposing a deed of company arrangement ('DOCA') to support his contention that there was some complexity to the liquidation and that certain investigations were required. He says that meetings were held on the issue of the proposed DOCA/termination between the Plaintiff and his solicitors and the Former Liquidator and his solicitors. He says that it required 'legal guidelines' and it was appropriate that solicitors were involved in the discussions. The discussions, he says, resulted in the DOCA proposal being abandoned.

86 Any DOCA proposal would require the Former Liquidator to report to creditors and make a recommendation in respect of it. He would need to be appraised of the actual assets and liabilities of the Company, so that he could form an opinion as to whether any proposed DOCA presented a better return to creditors than the continuation of the winding up.

87 If, instead of a DOCA, there was to be a termination of the winding up, then the Former Liquidator says that he would be required to report his views on the solvency of the Company to the Court, as solvency is a central question in such an application. Either way, it was appropriate and necessary for him to continue in his task of identifying the creditors of the Company as that would be critical to the question of solvency and return to creditors.

88 The Former Liquidator expresses, in his second affidavit, that he was concerned by a number of inconsistencies in respect of the financial position of the Company and the information provided to him by the Plaintiff.[67] He says that:

(a) the Plaintiff had told him that the Company had never traded and the Property was used by the Company's directors and their extended family, but he ascertained from a local real estate agent who he had contacted to discuss the local property market and to verify information supplied by the Plaintiff that the real estate agent had previously managed the Property as short term rental accommodation, from around 1996 to 2012. He contacted the ATO to ascertain the income earned from the short term rental declared in the Company's tax returns, but was informed that no tax returns had been lodged (he had earlier been told by the Plaintiff that financial accounts for the Company had been prepared and the most recent tax return was lodged). The Plaintiff said in his first affidavit that there was an agreement by the Company's directors for the income from the short term rental be paid directly to him and for him to declare that income in his personal tax returns, and there was an inconsistency between the First Morgan Affidavit and the Second Morgan Affidavit in that the agreement was first said to have been made in 2006 but later said to have been made in 2002. Further, there were inconsistencies between the two affidavits as to the amount of gross rental income from the Property;

(b) he ascertained from the ATO and the Company's accountant that no tax returns for the Company were ever prepared or lodged, which was not what the Plaintiff had told him. The ATO informed the Former Liquidator that if rental income had been received by the Company then tax returns were required;

(c) in the Second Morgan Affidavit, the Plaintiff referred to his 'other company, TT Marquet'. The Former Liquidator conducted a search and discovered that he is a director of 5 companies and previously a director of at least 10 other companies;

(d) in his first Affidavit, the Plaintiff said that he had personally paid all other operational costs associated with the Property, however in the Second Morgan Affidavit he said that with the exception of the purchase price, all operational costs were paid by him or TT Marquet;

(e) in the Report As To Affairs ('RATA') which the Plaintiff submitted to the Former Liquidator,[68] he said that he was an unsecured creditor in the amount of $1,618,656. In correspondence that followed, the Plaintiff said that he had information to support this but he would not make a call for payment at this stage. The Former Liquidator asked him to amend the RATA to reflect this, but he did not do so. In the First Morgan Affidavit, the Plaintiff said he did not intend to be a creditor and would not assert any claim against the Company, and in the Second Morgan Affidavit he said he was not expecting the Company to repay him except if the Property was sold to satisfy the outstanding mortgage balance;

(f) in the RATA, the Plaintiff included information about the CBA facilities and said that as at 19 September 2018, $364,344 was owing under two security interests. The Former Liquidator made further enquiries with the CBA and was informed that as at 15 October 2018, the debt was $640,088.60 and was for four facilities secured against the Property. In the First Morgan Affidavit, the Plaintiff said the outstanding balance as at 11 October 2018 was approximately $614,530.30, whereas in the Second Morgan Affidavit, the Plaintiff said the total outstanding was $364,344 against two facilities;

(g) the RATA disclosed that apart from debts to the Plaintiff, the SRO and the CBA, there were no other debts of the Company. However, the Former Liquidator made enquiries with the local municipality and water authorities regarding any other statutory debts, and was advised by MSC that outstanding rates amounted to $9,919.69 as at the date of his appointment. Wannon Region Water Corporation advised him that the Company had an outstanding account of $576.59 as at the date of his appointment, which had been referred to a debt collector due to the length of time the account had been in arrears.

89 The Former Liquidator submits that it was necessary for him to undertake investigations and the work described earlier in these reasons so as to satisfy himself about these inconsistencies as they were relevant to his views about the solvency of the Company and the Termination Application.

90 The Former Liquidator submits that the Third Morgan Affidavit seeks to minimise the issues which he was required to deal with in the liquidation and complains that the remuneration was not reasonable given the number of assets and creditors which the Company had. He says that the Plaintiff does not point to any work which the Former Liquidator should not have undertaken. In particular, the Former Liquidator says that the Plaintiff:

(a) does not say that the Former Liquidator should not have obtained legal advice or that he should not have been represented at the hearing of the Termination Application;

(b) does not say that the Former Liquidator should not have reported his views as to solvency to the Court;

(c) ignores the fact that a lot of the work undertaken by the Former Liquidator related to his proposals for a DOCA or alternatively a termination application;

(d) ignores the investigations conducted by the Former Liquidator to ascertain whether the creditors as reported by the Plaintiff were correct;

(e) claims that the Company only had two creditors, completely ignoring the amount owed to the CBA and the debt to the Plaintiff as recorded in the RATA; and

(f) does not explain why the Former Liquidator should not have investigated the basis on which all of the income from the Company was paid to him personally.

91 The Former Liquidator rejects what he describes as an inference in the Third Morgan Affidavit that as soon as he was advised that there was likely to be a DOCA or termination of the winding up, he should have stopped all work and not undertaken any investigations as to the affairs of the Company, instead taking the Plaintiff's word for the Company's financial position. He says that this is inconsistent with his duties and obligations, particularly when he needed to form a view as to the Company's solvency (in the event of a termination) or the return to creditors (in the event of a DOCA), and where Company income was being paid to the Plaintiff instead of the Company.

92 By reference to Deputy Commissioner of Taxation v Starpicket Pty Ltd (No. 2),[69] the Former Liquidator submits that liquidators have fundamental tasks and duties which are required to be carried out, notwithstanding assertions that an application will be made to terminate the winding up. He says that in that context, assertions that tasks performed were unnecessary or premature rely on the luxury of hindsight.

93 The Former Liquidator points out that the liquidation of the Company was on foot for approximately 14 weeks and that the application to terminate the winding up was made in week 9 of the liquidation.

94 The Former Liquidator submits that he is entitled to be awarded remuneration for work necessarily done in complying with the law subsequent to the termination of his appointment, and that work done in preparing a claim for remuneration forms part of an award for remuneration.[70]

95 He says that since the termination of the winding up, he has undertaken statutory tasks and prepared for this application, including the application for review. Since this work has arisen out of the liquidation, it should form part of the remuneration and disbursements of the liquidation.

96 Finally, the Former Liquidator submits that the word undertaken is set out in detail in his affidavits and the Remuneration Statement, that it was necessary to perform that work and the time spent and amount charged were reasonable. He says that there are no questions as to the quality of the work performed and it was appropriately delegated and supervised. It was appropriate for him to undertake investigations and satisfy himself as to issues such as solvency and the creditors of the Company, and that work and his involvement in the Termination Application were of assistance to the Court.

Should a review of the remuneration already approved by creditors be conducted?

97 I am satisfied that it is appropriate and just that a review of the Remuneration Determination be conducted.

98 The Remuneration Determination was made, with effectively only one creditor (i.e. MSC) voting to approve the Remuneration Resolution (since by then, the SRO Debt had been paid such that the SRO was no longer eligible to vote).

99 The Plaintiff chose not to lodge a proof of debt in the administration or to vote in respect of the Remuneration Resolution, and he has explained why he took that approach. While his rationale may, in part at least, have proved erroneous, the circumstances in which the Remuneration Determination was made tend in favour of a review of the Remuneration Determination being conducted.

100 The terms of the Termination Orders are such that it is the Plaintiff who is liable to pay the Former Liquidator's remuneration, the quantum of which was to be determined by agreement between the Plaintiff and the Former Liquidator or further order of the Court. There is no distinction made in the Termination Orders between remuneration which had already been approved and further remuneration, and the orders contemplated the Plaintiff making an application for review.

101 In circumstances where the Plaintiff is liable to pay, where the Plaintiff did not participate in the approval of the Remuneration Resolution, and where the Court has an express role, including by virtue of the Termination Orders, it is just that the Court conduct a review.

102 Further, I am satisfied that in all the circumstances (including my reasons as set out below), there is a well-based suspicion that the quantum of the Remuneration Determination is not reasonable, such that a review ought be conducted.

103 There has not been any criticism of the hourly rates charged by IRT Advisory or that the Former Liquidator calculated his remuneration on a time-cost basis. I am satisfied that it was appropriate for the remuneration to be calculated on a time-cost basis, and I am also satisfied that IRT Advisory's rates were within the range typically charged by insolvency practitioners.

Impact of the foreshadowed Termination Application on the work performed by the Former Liquidator

104 The Plaintiff places a great deal of emphasis on his early notification (6 days after appointment) of his intention to apply for the termination of the winding up, which intention was repeated a number of times, to contend that much of the work carried out by the Former Liquidator was unnecessary and unreasonable.

105 However, the situation is not as straightforward as the Plaintiff submits. In Starpicket, Gordon J (as her Honour then was) dealt with a remuneration application where the liquidation of the subject company had, like this case, been terminated by the Court. Her Honour stated:[71]

... there is no basis for the suggestion that the Liquidator should have ceased performing his duties as Liquidator of Starpicket by reason of his being put on notice of Starpicket's intention to apply for orders setting aside his appointment. On the contrary, it would have been inappropriate and impermissible for him to do so. The Liquidator had been appointed by order of this Court and had an obligation to continue to perform his duties accordingly.

Nevertheless, as the Liquidator was aware of Starpicket's application, he could not simply continue to act without regard to the possibility that his appointment might be terminated. The Liquidator was required to exercise his professional judgment as to what work was reasonable and necessary prior to the hearing and determination of Starpicket's application.

106 There has been no explanation given as to why the Plaintiff, having given very early notice of his intention to apply for the termination of the winding up, waited until some 9 weeks after the commencement of the winding up to make that application. Although, from some of the correspondence between the Former Liquidator and the Plaintiff or his solicitors, it is apparent that the parties were working on what the Former Liquidator said he required before he would be in a position to say whether he supported the application.[72] In any event, the Former Liquidator cannot be expected to not perform the usual duties and obligations of a liquidator just because a director of the Company has signalled an intention to have the winding up terminated.

107 I accept the Former Liquidator's submission that certain investigations were warranted and that he needed to form a view as to the Company's solvency, that question being relevant to the Termination Application. I also accept his submission that he had an obligation to ascertain the Company's financial position for himself and that he could not simply accept the Plaintiff's word for it, particularly in light of the inconsistencies which he had identified. It was not as simple as the Plaintiff now portrays it, particularly as it took a period of time and some investigation for the position of the Company vis-à-vis the CBA to emerge and for the Company's potential tax liabilities to be clarified (primarily by reason of the income from short term rental of the Property).

108 For the reasons set out in the previous paragraph, I accept that the liquidation of the Company was not as simple as the Plaintiff would have it.

109 However, I also consider that the liquidation was not as complex as the Former Liquidator submits.

110 Much emphasis was made in the Former Liquidator's submissions of the possibility of a DOCA proposal and the need for investigations to be conducted and for legal advice to be obtained in respect of it.

111 I do not accept that the possibility of a DOCA required much investigation or legal advice, as it ought to have been readily apparent that it was not likely to be an appropriate course. Further, it appears to have been mentioned only once in the correspondence, being in the letter written by the Plaintiff personally to the Former Liquidator dated 18 September 2018. In that letter, the Plaintiff provided some background about the Company and the Property, including that it did not trade and its purpose was to hold the Property, and that apart from some related party loans the principal creditor was the SRO, with the remaining creditors being current service and supply creditors on normal terms. The Plaintiff wrote that he proposed:[73]

the Liquidator advise me as to the Commissioner's claim and costs to date;

ii. what costs have been incurred in the liquidation to date;

what costs are estimated to be necessary to indemnify the liquidator through to the termination of the winding up order;
I will have our lawyers prepare a [DOCA] for your consideration; and should the Liquidator approve
I would ask the Liquidator to make an application to the Supreme Court to terminate the winding up on the basis that it is just and equitable to do so (I understand that the Company will be liable for the costs of such an application).

112 It seems tolerably clear to me that the notion of both entering into a DOCA and terminating the winding up would have been an unusual course.

113 In any event, just over an hour later Mr Verney sent an email to Mr Fuller, stating that the Company is solvent and has sufficient funds to pay the SRO and the Former Liquidator's fees to date.[74] Importantly in this context, he asked that the Former Liquidator make an urgent application to the Court for the termination of the winding up under s 482(1) of the Act, and asked for information about the SRO Debt, the SRO's costs, the Former Liquidator's fees and disbursements to date and for the completion of the termination application, the steps the Former Liquidator needed to perform to lodge the application, and what information he needed from the Plaintiff for that application. He also indicated that their intention was to lodge the application that week and asked for confirmation that it was possible.

114 So far as I have been able to ascertain, the initial 18 September letter from the Plaintiff is the only time the prospect of a DOCA is mentioned. It is swiftly followed by the email from Mr Verney which did not mention a DOCA. After that, all of the correspondence concerned queries from the Former Liquidator about the Company's financial position and the proposed termination application.

115 In the Third Poulter Affidavit, the Former Liquidator refers to Mr Verney's email of 18 September asking him to make the Termination Application that week and says that despite this email, on the same day he received the 18 September letter from the Plaintiff which referred to the DOCA. He says that he assumed from that letter that the Plaintiff was considering different options.[75] The Third Poulter Affidavit suggests, but does not state as such, that the letter followed the email from Mr Verney, but it is apparent from the exhibits to the First Morgan Affidavit that this was not the case.

116 In my view, the emphasis placed on the possibility of a DOCA in the Former Liquidator's submissions was misplaced and to the extent that it is relied upon to make the liquidation appear complex, it is rejected.

117 Nonetheless, I accept the Former Liquidator's submission that the solvency of the Company would be a central issue in the Termination Application and that the Court would likely look to him for a view about that. That would be the case, whether the Former Liquidator made the application (as appears to have been originally envisioned) or whether it would be the Plaintiff who would do so. However, the Former Liquidator's remuneration and legal costs if making the application himself would likely be greater than if the Plaintiff was to do it.

118 The question then becomes whether, in order to form a view as to the solvency of the Company and whether he supported the Termination Application, it was necessary or reasonable for the Former Liquidator to undertake all of the work that he did. I accept, as does the Plaintiff (see paragraph 81 above), that it was necessary for the Former Liquidator to form a view of the Company's solvency and that some additional complexity was caused by the absence of books and records of the Company and confusion regarding income from the Property and the taxation position of the Company.

119 However, once it became tolerably clear that the CBA was not enforcing its mortgage, had no intention of doing so, and that repayments on the facilities were up to date; that the only creditors were the SRO and MSC; that the Plaintiff had no intention of claiming the moneys said to be owed to him by the Company; and that the equity in the Property far exceeded the total of all debts (including contingent liabilities), then the Company's solvency ought have been readily apparent. I do not see how it was necessary or reasonable for the Former Liquidator to continue to perform work in relation to the Company's solvency after that point. Further, even if there was some potential taxation liability in respect of the short term rental income, the calculations made by the Former Liquidator[76] were sufficient to reveal that this could have been readily dealt with, without jeopardising the solvency position of the Company. Further, there were assurances from the Plaintiff that he could and would continue to support the operational costs of the Company as he had done in the past.

120 From my review of the materials, it appears that by:

(a) 20 September 2018, the Plaintiff had received confirmation from the CBA that it was not enforcing its mortgage, had no intention of doing so, and that repayments on the facilities were up to date. There is no evidence, however, of whether this was provided to the Former Liquidator prior to it being referred to in the First Morgan Affidavit;

(b) 25 September 2018, the Plaintiff had confirmed in writing that he had no intention of being included as a creditor and would not assert a claim against the Company;[77]

(c) 8 October 2018, a local real estate agent had advised the Former Liquidator that he expected $2m would be cleared from a sale of the Property;[78]

(d) 9 October 2018, the Former Liquidator's staff communicated with each of MSC and Wannon Water to confirm that the outstanding amounts for council rates and water rates were paid;[79]

(e) 11 October 2018, the Plaintiff had bank statements showing that the amount secured against the Property was approximately $614,530.30.[80] Again, there is no evidence of whether this was provided to the Former Liquidator prior to it being referred to in the First Morgan Affidavit. As noted above, the RATA stated that this amount was $364,344 and the Former Liquidator's own inquiries revealed that it was $640,088.60.[81] Regardless of the inconsistencies in the amounts deposed to in the First and Second Morgan Affidavits,[82] the Former Liquidator knew, by 17 October 2018 at the latest, what the position was with the CBA;[83] and

(f) 23 October 2018, the Plaintiff paid the SRO Debt and the SRO's costs as petitioning creditor.

121 There is no evidence as to when the position in relation to the potential taxation liability became clear to the Former Liquidator. Despite this, it ought to have been readily apparent by no later than 17 October 2018 that the Company was solvent and that further investigations were not necessary.

The Former Liquidator's conduct of the Termination Application

122 In his second affidavit, the Former Liquidator emphasised the inconsistencies which I have summarised in paragraph 88 above. Several of the inconsistencies identified by the Former Liquidator do not seem particularly relevant to the question of solvency (for example, the number of companies of which the Plaintiff was or had been a director).

Plaintiff v Defendant

At a glance

Court

Decision date

Before

Source

Judgment (305 paragraphs)

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Cases Cited (6)